INTRODUCTION

In Management's Discussion and Analysis ("MD&A"), we explain the general financial condition and the results of operations for STERIS and its subsidiaries including:

• what factors affect our business;

• what our earnings and costs were;

• why those earnings and costs were different from the year before;

• where our earnings came from;

• how this affects our overall financial condition;

• what our expenditures for capital projects were; and

• where cash will come from to fund future growth outside of core operations, repurchase common shares, and pay cash dividends and fund future working capital needs.

The MD&A also analyzes and explains the annual changes in the specific line items in the Consolidated Statements of Income. As you read the MD&A, it may be helpful to refer to information in Item 1, "Business," Item 6, "Selected Financial Data," and our consolidated financial statements, which present the results of our operations for fiscal 2009, 2008 and 2007, as well as Part I, Item 1A, "Risk Factors" and Part I, Item 3, "Legal Proceedings" for a discussion of some of the matters that can adversely affect our business and results of operations. This information, discussion, and disclosure may be important to you in making decisions about your investments in STERIS.

FINANCIAL MEASURES

When we discuss our financial condition and the results of our operations, we, at times, may refer to financial measures that are not required to be presented in the consolidated financial statements under accounting principles generally accepted in the United States. We sometimes use the following financial measures in the context of this discussion and define these financial measures as follows:

• Backlog - We define backlog as the amount of unfilled capital purchase orders at a point in time. We use this figure as a measure to assist in the projection of short-term financial results and inventory requirements.

• Debt-to-total capital - We define debt-to-capital as total debt divided by the sum of debt and shareholders' equity. We use this figure as a financial liquidity measure to gauge our ability to borrow, provide strength/protection against creditors, fund growth, and measure the risk of our financial structure.

• Net debt-to-total capital - We define net debt-to-capital as total debt less cash ("net debt") divided by the sum of net debt and shareholders' equity. We also use this figure as a financial liquidity measure and to measure the risk of our financial structure.

• Days sales outstanding - We define days sales outstanding as the average collection period for accounts receivable. It is calculated as net accounts receivable divided by the trailing four quarters' revenues, multiplied by 365 days. We use this figure to help gauge the quality of accounts receivable and expected time to collect.

We, at times, may also refer to financial measures which are considered to be "non-GAAP financial measures" under SEC rules. Non-GAAP financial measures we may use are as follows:

• Free cash flow - We define free cash flow as cash flows from operating activities as presented in the Consolidated Statements of Cash Flows, which are presented in Item 8, "Financial Statements and Supplementary Data," less purchases of property, plant and equipment, net, plus proceeds from the sale of property, plant and equipment, which are also presented in the Consolidated Statements of Cash Flows. We use this measure to gauge our

Years Ended March 31,                                                    2009             2008
                                                                        (dollars in millions)
Cash flows provided by operating activities.                          $     167.4       $  143.4
Purchases of property, plant and equipment, and intangibles,
net.                                                                        (40.9 )        (57.0 )
Proceeds from the sale of property, plant and equipment, and
intangibles                                                                  19.3            5.2
Free Cash Flow                                                        $     145.8       $   91.6

We may, at times, refer to our results of operations excluding certain transactions or amounts that are non-recurring or are not indicative of future results, in order to provide meaningful comparisons between the years presented. For example, when discussing changes in revenues, we may, at times, exclude the impact of current or prior year business acquisitions.

We have presented these financial measures because we believe that meaningful analysis of our financial performance is enhanced by an understanding of certain additional factors underlying that performance. These financial measures should not be considered an alternative to measures required by accounting principles generally accepted in the United States. Our calculations of these measures may differ from calculations of similar measures used by other companies and you should be careful when comparing these financial measures to those of other companies.

REVENUES-DEFINED

As required by Regulation S-X, we separately present revenues generated as either product revenues or service revenues on our Consolidated Statements of Income for each year presented. When we discuss revenues, we may, at times, refer to revenues summarized differently than the Regulation S-X requirements. The terminology, definitions, and applications of terms that we use to describe revenues may be different from terms used by other companies. We use the following terms to describe revenues:

• Revenues - Our revenues are presented net of sales returns and allowances.

• Product Revenues - We define product revenues as revenues generated from sales of capital equipment, which includes steam and low temperature liquid sterilizers, washing systems, VHP® technology, water stills, and pure steam generators; integrated OR; surgical lights and tables; and the consumable family of products, which includes STERIS SYSTEM 1® consumables, sterility assurance products, skin care products, and cleaning consumables.

• Service Revenues - We define service revenues as revenues generated from parts and labor associated with the maintenance, repair, and installation of our capital equipment, as well as revenues generated from contract sterilization offered through our Isomedix segment.

• Capital Revenues - We define capital revenues as revenues generated from sales of capital equipment, which includes steam and low temperature liquid sterilizers, washing systems, VHP® technology, water stills, and pure steam generators; surgical lights and tables; and integrated OR.

• Consumable Revenues - We define consumable revenues as revenues generated from sales of the consumable family of products which includes STERIS SYSTEM 1® consumables, sterility assurance products, skin care products, and cleaning consumables.

• Recurring Revenues - We define recurring revenues as revenues generated from sales of consumable products and service revenues.

• Acquired Revenues - We define acquired revenues as base revenues generated from acquired businesses or assets and additional volumes driven through acquired businesses or assets. We will use such measure for up to a year after acquisition.

GENERAL COMPANY OVERVIEW AND OUTLOOK

Our Business. Our mission is to provide a healthier today and safer tomorrow through knowledgeable people and innovative infection prevention, decontamination and health science technologies, products, and services. Our dedicated employees around the world work together to supply a broad range of solutions by offering a combination of equipment, consumables, and services to healthcare, pharmaceutical, industrial, and governmental Customers.

The bulk of our revenues are derived from the healthcare and pharmaceutical industries. Much of the growth in these industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new technologies, government policies, and general economic conditions. In addition, each of our core industries is experiencing specific trends that increase demand. Within healthcare, there is increased concern regarding the level of hospital-acquired infections around the world. The pharmaceutical industry has been impacted by increased FDA scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes. In the contract sterilization industry, the aging population increases the demand for medical procedures, which increases the consumption of single use medical devices and surgical kits.

Beyond our core markets, infection-control issues are becoming a global concern, and emerging threats are prominent in the news. We are actively pursuing new opportunities to adapt our proven technologies to meet the changing needs of the global marketplace.

Highlights. In fiscal 2009, we continued efforts to improve profitability and efficiency. We benefited from recent new product introductions as well as productivity improvements from the transfer of our manufacturing operations from Erie, Pennsylvania to Monterrey, Mexico. We are now beyond the one year anniversary of reaching full production levels in Monterrey and therefore, going forward, we do not anticipate significant additional savings when compared to prior periods.

On August 15, 2008, we issued $150.0 million of senior notes in a private placement (the "August 2008 Private Placement") in an offering that was exempt from the registration requirements of the Securities Act of 1933. We have used and we will use the proceeds for general corporate purposes, including the repayment of debt, capital expenditures, acquisitions, dividends, and share repurchases. The notes issued in the August 2008 Private Placement allowed us to lock-in what we believe are favorable long-term rates and strengthen our liquidity position.

In the third quarter of fiscal 2009, we announced our investment in a joint venture with VTS Medical Systems Inc. designed to bring the latest high-definition video, touch-screen integration, and communication technology into hospital operating rooms.

Also in the third quarter of fiscal 2009, we adopted a restructuring plan primarily related to our international operations. This plan included actions regarding the improvement of operations at our Pieterlen, Switzerland manufacturing facility, the rationalization of certain products, the impairment of certain assets that will no longer be used, certain targeted workforce reductions and the closure of our sales offices in Japan. These actions combined with additional actions undertaken in prior years allowed us to make substantial progress in reducing our cost base.

For fiscal 2009, our financial position and cash flows remained strong. Cash flows from operations were $167.4 million and free cash flow was $145.8 million. We continue to maintain low debt levels with our debt-to-total capital ratio of 22.6% at March 31, 2009. Our financial position and cash flows afford us financial flexibility. We have used that flexibility to, among other things, return value to shareholders principally through common share repurchases and cash dividends.

A detailed discussion of our fiscal 2009 performance is included in the subsection of MD&A titled, "Results of Operations."

Outlook. We face numerous challenges, uncertainties and opportunities in fiscal 2010. The markets we serve are experiencing significant change with more uncertainty than we have seen in several years. The economic crisis and uncertainty surrounding potential healthcare reforms place pressure on our Customers' budgets. We are responding with new products that are designed to reduce our Customers' operating costs and, at the same time, are more environmentally friendly and improve quality. In fiscal 2010, we anticipate that revenues will be flat or decline slightly in comparison to fiscal 2009. We continue to work to obtain clearance of our next generation liquid sterilizer. In the meantime, we will continue to experience a decline in revenues associated with STERIS SYSTEM 1®. See Part I, Item3, "Legal Proceedings".

Our results could be impacted by how quickly and the extent to which we are able to respond to raw material and other cost increases. However, we anticipate only moderate increases in raw materials costs in fiscal 2010, primarily related to farm-based chemicals. The actions we have taken over the last several years have and will continue to benefit us as our cost base has been meaningfully reduced. In this challenging environment, operational efficiency is critical to not only our projected earnings growth but also to our continued investment in research and development and field sales and service, which will create value for our Customers in fiscal 2010 and beyond. In addition, fluctuations in foreign currency rates can impact revenues and costs outside of the United States creating uncertainty for our results for fiscal 2010 and beyond.

We believe our balance sheet and ability to generate cash is strong and will provide us with the flexibility to pursue opportunities for growth.

MATTERS AFFECTING COMPARABILITY

Restructuring. During the third quarter of fiscal 2009, we adopted a restructuring plan primarily focused on our international operations (the "Fiscal 2009 Restructuring Plan"). As part of this plan, we took actions to improve operations at our Pieterlen, Switzerland manufacturing facility, rationalized certain products, recorded impairment charges for certain assets no longer used, and made targeted workforce reductions. We will also close two sales offices in Japan. These actions are expected to directly impact approximately 100 employees worldwide.

In fiscal 2009, we recorded pre-tax expenses totaling $15.6 million related to these actions, of which $4.8 million was recorded as restructuring expenses and $10.8 million was recorded in cost of revenues. We do not expect to incur significant additional expenses related to this plan. We are continuing to evaluate all of our operations for additional opportunities to improve performance, but we have not committed to any additional specific actions. During the fourth quarter of fiscal 2008, we adopted a restructuring plan primarily focused on our North American operations (the "Fiscal 2008 Restructuring Plan"). As part of this plan, we announced the closure of two sales offices, reduced the workforce in certain support functions, and rationalized certain products. These actions are intended to enhance profitability and improve efficiency by reducing ongoing operating costs. Across all of our reporting segments, approximately 90 employees, primarily located in North America, were directly impacted.

In the third quarter of fiscal 2009, we reversed our decision to close one of the sales offices, because a satisfactory exit from our warranty and service obligations could not be achieved. As a result, we have reversed restructuring expenses recorded in the fourth quarter of fiscal 2008 totaling approximately $1.0 million.

During fiscal 2009, we did not incur any additional significant restructuring expenses related to the Fiscal 2008 Restructuring Plan, and we settled certain termination benefits and other costs for less than originally expected. In fiscal 2008, we recorded pre-tax expenses totaling approximately $15.8 million related to these actions, including $11.7 million recorded as restructuring expenses and $4.1 million recorded as cost of revenues. We do not expect to incur any significant additional restructuring expenses related to this plan.

During the third quarter of fiscal 2007, we adopted a restructuring plan related to certain of our European operations (the "European Restructuring Plan"). As part of this plan, we closed two sales offices. We also took steps to reduce the workforce in certain European support functions. These actions are intended to improve our cost structure in Europe. Approximately 40 employees were directly impacted in various European locations.

In fiscal 2009, fiscal 2008, and fiscal 2007, we recorded pre-tax expenses of $0.1 million, $0.1 million, and $1.7 million, respectively, for the European Restructuring Plan, primarily for severance and termination benefits, for lease termination costs, and for non-cash expenses related to asset write-downs. During the first quarter of fiscal 2009, we settled the remaining obligations associated with this plan.

On January 30, 2006, we announced that the manufacturing portion of our Erie, Pennsylvania operations would be transferred to Mexico to reduce production costs and improve our competitive position. Plans for other restructuring actions, including the closure of a sales office, rationalization of operations in Finland, and the elimination of certain management positions were also approved. These actions were designed to reduce operating costs within the ongoing operations of both the Healthcare and Life Sciences segments, and together we refer to them as the "Fiscal 2006 Restructuring Plan."

Operating income for fiscal 2009 includes pre-tax restructuring expenses of approximately a negative $0.2 million primarily for certain severance benefits that were settled for less than originally expected. Operating income for fiscal 2008 and fiscal 2007 includes pre-tax restructuring expenses for the Fiscal 2006 Restructuring Plan of approximately $3.6 million and $4.9 million, respectively, primarily for non-cash expenses related to asset write-downs, accelerated recognition of pension and retiree medical benefits, and severance and termination benefits related to the transfer and other restructuring actions.

We completed the transfer of our Erie, Pennsylvania manufacturing operations during fiscal 2008. During the fourth quarter of fiscal 2009, we settled the remaining obligations associated with the Fiscal 2006 Restructuring plan.

We are continuing to evaluate all of our operations for additional opportunities to improve performance, but we have not committed to any additional specific actions.

Further information regarding our restructuring actions is included in note 2 to our consolidated financial statements titled, "Restructuring."

Accounting for Uncertain Tax Positions. On April 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN No. 48"), "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109," which provides guidance for the recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, we cannot recognize a tax benefit in our financial statements unless it is more-likely-than-not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. FIN No. 48 requires the cumulative effect of adoption to be recorded as an adjustment to the opening balance of retained earnings. In connection with the adoption of FIN No. 48, we recorded an adjustment of $8.4 million, increasing our liability for unrecognized tax benefits, interest, and penalties and reducing the April 1, 2007 balance of retained earnings. Prior to April 1, 2007, we regularly assessed our positions with respect to tax exposures and recorded liabilities for uncertain tax positions according to Statement of Accounting Standards No. 5 ("SFAS No. 5"), "Accounting for Contingencies."

Additional information regarding our adoption of FIN No. 48 is included in the subsection of MD&A titled, "Critical Accounting Policies, Estimates, and Assumptions" and in note 1 and note 9 to our consolidated financial statements titled, "Nature of Operations and Summary of Significant Accounting Policies" and "Income Taxes," respectively.

Business Dispositions. On October 31, 2005, we sold our lyophilizer (freeze dryer) product line to GEA Group of Germany for 20.8 million euros (approximately $25.2 million). As a result of this sale, we recorded an after-tax gain of approximately $7.3 million ($1.1 million recorded in fiscal 2007 and $6.2 million recorded in fiscal 2006). The freeze dryer product line, based in Cologne, Germany, was part of our Life Sciences segment. This product line is presented as a discontinued operation in our financial statements. Revenues, cost of revenues, operating expenses, and income taxes attributable to this product line are aggregated in a single line on the income statement for all periods presented.

Further information regarding our discontinued operations is included in note 16 to our consolidated financial statements titled, "Business Dispositions."

International Operations. Since we conduct operations outside of the United States using various foreign currencies, fluctuations in the exchange rate of the U.S. dollar relative to the currencies of foreign countries in which we operate can also increase or decrease our reported net assets and results of operations. During fiscal 2009, our revenues were unfavorably impacted by $13.1 million, or 1.0%, and income before taxes was favorably impacted by $5.8 million, or 3.3%, as a result of foreign currency movements relative to the U.S. dollar.

RESULTS OF OPERATIONS

In the following subsections, we discuss our earnings and the factors affecting them. We begin with a general overview of the results of operations of the Company and then separately discuss earnings for our operating segments.

FISCAL 2009 AS COMPARED TO FISCAL 2008

Revenues. The following table compares our revenues for the year ended March 31,
2009 to the year ended March 31, 2008:



                                                                                                 Percentage of
                                  Years Ended March 31,                       Percent            Total Revenues
(dollars in thousands)            2009             2008          Change       Change          2009(1)      2008(1)
Capital revenues              $    536,647     $    528,082     $   8,565         1.6 %          41.3 %       41.7 %
Consumable revenues                294,882          283,976        10,906         3.8 %          22.7 %       22.4 %
Product revenues                   831,529          812,058        19,471         2.4 %          64.0 %       64.2 %
Service revenues                   466,996          453,032        13,964         3.1 %          36.0 %       35.8 %
Total Revenues                $  1,298,525     $  1,265,090     $  33,435         2.6 %         100.0 %      100.0 %
Service revenues              $    466,996     $    453,032     $  13,964         3.1 %          36.0 %       35.8 %
Consumable revenues                294,882          283,976        10,906         3.8 %          22.7 %       22.4 %
Recurring revenues                 761,878          737,008        24,870         3.4 %          58.7 %       58.3 %
Capital revenues                   536,647          528,082         8,565         1.6 %          41.3 %       41.7 %
Total Revenues                $  1,298,525     $  1,265,090     $  33,435         2.6 %         100.0 %      100.0 %
United States                 $    993,487     $    971,018     $  22,469         2.3 %          76.5 %       76.8 %
International                      305,038          294,072        10,966         3.7 %          23.5 %       23.2 %
Total Revenues                $  1,298,525     $  1,265,090     $  33,435         2.6 %         100.0 %      100.0 %

(1) Certain percentages may not calculate exactly due to rounding.

Revenues increased $33.4 million, or 2.6%, to $1,298.5 million for the year ended March 31, 2009, as compared to $1,265.1 million for fiscal 2008. For fiscal 2009, recurring revenues increased 3.4% as compared to fiscal 2008. The recurring revenues increase was generated primarily by a 3.1% increase in service revenues as compared to fiscal 2008. Service revenues, which increased in all segments, were driven by an $11.8 million, or 5.1%, increase in the Healthcare segment. Within our Life Sciences and Isomedix segments, service revenues for fiscal 2009 increased 0.7% and 1.5%, respectively, as compared to fiscal 2008. Consumable revenues also increased $10.9 million, or 3.8%, for fiscal 2009 when compared to the prior year, primarily driven by growth of 3.5% in the Healthcare segment. Capital revenues increased $8.6 million, or 1.6%, during fiscal 2009, as compared to fiscal 2008. An increase of 5.7% in the Healthcare segment's capital revenues was partially offset by a decrease of 14.3% in capital revenues in the Life Sciences segment. The decrease in Life Sciences capital revenues was a result of a strategic decision to focus on higher margin capital equipment. Also, in the prior year, the Life Sciences segment experienced a significant increase in capital equipment shipment levels in the fourth quarter, driven by a recovery in the United States research market.

International revenues for fiscal 2009 were $305.0 million, an increase of $11.0 million, or 3.7%, as compared to fiscal 2008. The increase in year-over-year international revenues was attributable to increases in capital, consumable, and service revenues of 4.7%, 3.8%, and 1.3%, respectively. International growth was led by increases in the Asia Pacific region in capital equipment and consumable revenues.

United States revenues for fiscal 2009 were $993.5 million, an increase of $22.5 million, or 2.3%, as compared to fiscal 2008. United States revenues were positively impacted by a 3.6% increase in recurring revenues, which were driven by increases in service revenues in the Healthcare and Isomedix segments and increases in consumable revenues in both the Healthcare and Life Sciences segment. Year over year, United States capital revenues increased 0.3% driven by increased revenues from healthcare Customers offset by reductions in spending by our pharmaceutical Customers as well as a strategic business decision to improve the profitability of our Life Sciences capital equipment revenues.

Revenues by segment are further discussed in the section of MD&A titled, "Business Segment Results of Operations."

Gross Profit. The following table compares our gross profit for the year ended March 31, 2009 to the year ended March 31, 2008:

                                        Years Ended March 31,                      Percent
  (dollars in thousands)                 2009            2008          Change      Change
  Gross Profit:
  Product                             $   334,614     $  321,934      $  12,680        3.9 %
. . .