Document and Entity Information	3 Months Ended
Document and Entity Information	Jun. 30, 2010	Jul. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2010
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q1
Trading Symbol	STE
Entity Registrant Name	STERIS CORP
Entity Central Index Key	0000815065
Current Fiscal Year End Date	--03-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		59,571,275

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Jun. 30, 2010	Mar. 31, 2010
Current assets:
Cash and cash equivalents	$ 226,070	$ 214,971
Accounts receivable (net of allowances of $9,688 and $9,238, respectively)	185,691	214,940
Inventories, net	131,955	121,135
Deferred income taxes, net	48,892	6,976
Prepaid expenses and other current assets	15,266	18,435
Total current assets	607,874	576,457
Property, plant, and equipment, net	345,288	346,858
Goodwill and intangibles, net	302,678	305,311
Other assets	9,766	9,776
Total assets	1,265,606	1,238,402
Current liabilities:
Current portion of long-term indebtedness
Accounts payable	64,132	66,035
Accrued income taxes	14,003
Accrued payroll and other related liabilities	29,968	58,986
Accrued SYSTEM 1 Rebate Program	110,004
Accrued expenses and other	68,573	72,108
Total current liabilities	286,680	197,129
Long-term indebtedness	210,000	210,000
Deferred income taxes, net	18,571	20,749
Other liabilities	54,465	56,030
Total liabilities	569,716	483,908
Commitments and contingencies (see note 10)
Serial preferred shares, without par value; 3,000 shares authorized; no shares issued or outstanding
Common shares, without par value; 300,000 shares authorized; 70,040 shares issued; 59,578 and 58,452 shares outstanding, respectively	235,650	237,165
Common shares held in treasury, 10,461 and 11,588 shares, respectively	(287,220)	(295,251)
Retained earnings	747,040	798,809
Accumulated other comprehensive (loss) income	(363)	12,991
Total shareholders' equity	695,107	753,714
Noncontrolling interest	783	780
Total equity	695,890	754,494
Total liabilities and equity	$ 1,265,606	$ 1,238,402

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jun. 30, 2010	Mar. 31, 2010
Accounts receivable, allowances	$ 9,688	$ 9,238
Serial preferred shares, without par value	$ 0	$ 0
Serial preferred shares, shares authorized	3,000	3,000
Serial preferred shares, shares issued	0	0
Serial preferred shares, shares outstanding	0	0
Common shares, without par value	$ 0	$ 0
Common shares, shares authorized	300,000	300,000
Common shares, shares issued	70,040	70,040
Common shares, shares outstanding	59,578	58,452
Common shares held in treasury, shares	10,461	11,588

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Jun. 30, 2010	Jun. 30, 2009
Revenues:
Product	$ 77,272	$ 173,500
Service	111,708	110,043
Total revenues	188,980	283,543
Cost of revenues:
Product	106,576	94,277
Service	64,338	64,430
Total cost of revenues	170,914	158,707
Gross profit	18,066	124,836
Operating expenses:
Selling, general, and administrative	72,117	74,605
Research and development	8,609	7,580
Restructuring expenses	341	(211)
Total operating expenses	81,067	81,974
(Loss) income from operations	(63,001)	42,862
Non-operating expenses, net:
Interest expense	3,007	3,083
Interest and miscellaneous income	(162)	(218)
Total non-operating expenses, net	2,845	2,865
(Loss) income before income tax (benefit) expense	(65,846)	39,997
Income tax (benefit) expense	(20,636)	14,455
Net (loss) income	$ (45,210)	$ 25,542
Net (loss) income per common share
Basic	$ (0.76)	$ 0.44
Diluted	$ (0.76)	$ 0.43
Cash dividends declared per common share outstanding	$ 0.11	$ 0.11

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2010	Jun. 30, 2009
Operating activities:
Net (loss) income	$ (45,210)	$ 25,542
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, depletion, and amortization	13,038	13,888
Deferred income taxes	(44,476)	(4,430)
Share-based compensation	3,913	1,985
(Gain) loss on the disposal of property, plant, equipment, and intangibles, net	405	(146)
Other items	(1,343)	271
Changes in operating assets and liabilities:
Accounts receivable, net	25,794	38,334
Inventories, net	(14,157)	(1,914)
Other current assets	3,002	5,455
Accounts payable	(1,137)	(18,519)
Accrued SYSTEM 1 Rebate Program	110,004
Accruals and other, net	(20,139)	(27,846)
Net cash provided by operating activities	29,694	32,620
Investing activities:
Purchases of property, plant, equipment, and intangibles, net	(12,411)	(8,355)
Proceeds from the sale of property, plant, equipment, and intangibles	3	175
Net cash used in investing activities	(12,408)	(8,180)
Financing activities:
Cash dividends paid to common shareholders	(6,546)	(6,441)
Stock option and other equity transactions, net	2,226	152
Tax benefit from stock options exercised	659	47
Net cash used in financing activities	(3,661)	(6,242)
Effect of exchange rate changes on cash and cash equivalents	(2,526)	3,694
Increase in cash and cash equivalents	11,099	21,892
Cash and cash equivalents at beginning of period	214,971	154,180
Cash and cash equivalents at end of period	$ 226,070	$ 176,072

Nature of Operations and Summary of Significant Accounting Policies

3 Months Ended

Jun. 30, 2010

Nature of Operations and Summary of Significant Accounting Policies

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

STERIS Corporation, an Ohio corporation, develops, manufactures and markets infection prevention, contamination control, microbial reduction, and surgical and critical care support products and services for healthcare, pharmaceutical, scientific, research, industrial, and governmental Customers throughout the world. As used in this Quarterly Report, STERIS Corporation and its subsidiaries together are called “STERIS,” the “Company,” “we,” “us,” or “our,” unless otherwise noted.

We operate in three reportable business segments: Healthcare, Life Sciences, and STERIS Isomedix Services (“Isomedix”). We describe our business segments in note 11 to our consolidated financial statements titled, “Business Segment Information.” Our fiscal year ends on March 31. References in this Quarterly Report to a particular “year” or “year-end” mean our fiscal year. The significant accounting policies applied in preparing the accompanying consolidated financial statements of the Company are summarized below:

Interim Financial Statements

We prepared the accompanying unaudited consolidated financial statements of the Company according to accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. This means that they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Our unaudited interim consolidated financial statements contain all material adjustments (including normal recurring accruals and adjustments) management believes are necessary to fairly state our financial condition, results of operations, and cash flows for the periods presented.

These interim consolidated financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on May 28, 2010. The Consolidated Balance Sheet at March 31, 2010 was derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Principles of Consolidation

We use the consolidation method to report our investment in our subsidiaries. Consolidation means that we combine the accounts of our wholly-owned subsidiaries with our accounts. Therefore, the accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. We eliminate inter-company accounts and transactions when we consolidate these accounts.

Use of Estimates

We make certain estimates and assumptions when preparing financial statements according to U.S. GAAP that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors that are difficult to predict and are beyond our control. Actual results could be materially different from these estimates. We revise the estimates and assumptions as new information becomes available. This means that operating results for the three-month period ended June 30, 2010 are not necessarily indicative of results that may be expected for future quarters or for the full fiscal year ending March 31, 2011.

Fair Value of Financial Instruments

Except for long-term debt, our financial instruments are highly liquid or have short-term maturities. Therefore, the recorded value is approximately equal to the fair value. We estimate the fair value of our long-term debt using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. We determined that the estimated fair value of our long-term debt is $242,117 at June 30, 2010. The financial instruments that we hold could potentially expose us to a concentration of credit risk. We invest our excess cash in highly rated money market funds and other high-quality short-term investments placed with major banks and financial institutions. We have established guidelines related to diversification and maturities to maintain safety and liquidity.

We provide additional information regarding the fair value of our financial instruments in note 17 titled, “Fair Value Measurements.”

Recently Adopted Accounting Pronouncements

In December 2009, the FASB issued an accounting standard update titled “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” The guidance requires entities to determine whether variable interests give it a controlling financial interest in a variable interest entity. It also requires an ongoing assessment of the beneficiary to determine if it is the primary beneficiary of the variable interest entity and eliminates the quantitative approach previously required for determining whether a reporting entity is the primary beneficiary. The guidance also requires enhanced disclosures about an entity’s involvement with a variable interest entity. This guidance was effective for us in the first quarter of fiscal 2011. The adoption did not have a material impact on our consolidated results of operations or financial condition.

In January 2010, the FASB issued an accounting standard update titled “Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures About Fair Value Measurements.” This new guidance requires additional disclosures to be provided, which follow as: 1) transfers in and out of Levels 1 and 2 and the reasons for the transfers, 2) additional breakout of asset and liability categories and 3) purchases, sales, issuances and settlements to be reported separately in the Level 3 rollforward. This guidance was effective for us for the first quarter of fiscal 2011 reporting with the exception of item 3 which is effective beginning with first quarter of fiscal 2012 reporting. The adoption did not have a material impact on our consolidated results of operations or financial condition.

Significant Accounting Policies

A detailed description of our significant and critical accounting policies, estimates, and assumptions is included in our Annual Report on Form 10-K for the year ended March 31, 2010, filed with the SEC on May 28, 2010. Our significant and critical accounting policies, estimates, and assumptions have not changed materially from March 31, 2010.

The Accrued SYSTEM 1 Rebate Program (the “Rebate Program”) recognized during the first quarter of fiscal 2011 is based upon the quantity of SYSTEM 1 processors eligible for rebates and the estimated value of rebates to be provided upon their return. Rebates of $102,313 are recognized as contra-revenue consistent with other returns and allowances offered to Customers. The estimated cost of $7,691 to facilitate the disposal of the returned SYSTEM 1 processors has been recognized as cost of revenues. Both components are recorded as current liabilities. No rebate obligations were settled during the three-months ended June 30, 2010. The key assumptions involved in the estimates associated with the Rebate Program include: the number and age of SYSTEM 1 processors eligible for rebates under the Rebate Program, the number of Customers that will elect to participate in the Rebate Program, the proportion of Customers that will choose each rebate option, and the estimated per unit costs of disposal.

The number and age of SYSTEM 1 processors has been estimated based on our historical sales and service records and we have assumed that 100% of these Customers will elect to participate in the Rebate Program. In order to estimate the portion of Customers that will choose each available rebate option, we first assessed recent trends in sales of the proprietary consumable products utilized in the SYSTEM 1 processor. The 19% decline in shipments during the approximately seven month period ended June 30, 2010 indicates that a portion of our Customers have already transitioned away from the SYSTEM 1 technology. The remaining 81%, provides the best available indication of the portion of Customers likely to elect the rebate for the SYSTEM 1E processor. Order and quote data from the fiscal 2011 first quarter provided indications of the proportion of Customers that are expected to choose each of the other rebate options. The per unit costs associated with disposal were estimated based on the service hours involved and quotes from our vendors which are based on current freight and disposal contracts.

Restructuring

3 Months Ended

Jun. 30, 2010

Restructuring

2. Restructuring

The following summarizes our restructuring plans announced in prior fiscal years. We recognize restructuring expenses as incurred. In addition, we assess the property, plant and equipment associated with the related facilities for impairment. Additional information regarding our respective restructuring plans is included in our Annual Report on Form 10-K for the year ended March 31, 2010, filed with the SEC on May 28, 2010.

Fiscal 2010 Restructuring Plan.

During the fourth quarter of fiscal 2010 we adopted a restructuring plan primarily related to the transfer of the remaining operations in our Erie, Pennsylvania facility to the U.S. headquarters in Mentor, Ohio and the consolidation of our European Healthcare manufacturing operations into two central locations within Europe (the “Fiscal 2010 Restructuring Plan”). In addition, we rationalized certain products and eliminated certain positions.

Since the inception of the Fiscal 2010 Restructuring Plan, we have incurred pre-tax expenses totaling $6,641 related to these actions, of which, $5,689 was recorded as restructuring expenses and $952 was recorded in cost of revenues. We also expect to incur an additional $4,000 by the end of fiscal 2012. These actions are intended to enhance profitability and improve efficiencies.

Fiscal 2009 Restructuring Plan.

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 also consolidated our operations in Japan. These actions impacted approximately 100 employees worldwide. These restructuring actions are intended to enhance our profitability and increase operating efficiencies.

Since the inception of the Fiscal 2009 Restructuring Plan, we have incurred pre-tax expenses totaling $13,679 related to these actions of which $4,266 was recorded as restructuring expenses and $9,413 was recorded in cost of revenues. We do not expect to incur significant additional expenses related to this plan.

Fiscal 2008 Restructuring Plan.

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 and the rationalization of certain products. We also reduced the workforce in certain support functions. Across all of our reporting segments, approximately 90 employees, primarily located in North America, were directly impacted. These restructuring actions were designed to enhance profitability and improve efficiency by reducing ongoing operating costs.

In fiscal 2009, we reversed our decision to close one of the sales offices, because we could not achieve a satisfactory exit from our warranty and service obligations. As a result, we reversed restructuring expenses recorded in fiscal 2008 totaling approximately $1,000.

Since the inception of the Fiscal 2008 Restructuring Plan, we have recorded pre-tax expenses totaling $14,333, of which $9,883 was recorded as restructuring expenses and $4,450 was recorded in cost of revenues. We do not expect to incur any significant additional restructuring expenses related to the Fiscal 2008 Restructuring Plan.

The following tables summarize our total pre-tax restructuring expenses for the first quarter of fiscal 2011 and fiscal 2010:


Three Months Ended June 30, 2010	Fiscal 2010 Restructuring Plan (1)
Severance, payroll, and other related costs	$	(17	)
Asset impairment and accelerated depreciation		356
Other		7

Total restructuring charges	$	346

(1)	Includes $5 in charges recorded in cost of revenues on Consolidated Statements of Operations.


Three Months Ended June 30, 2009	Fiscal 2009 Restructuring Plan (1)
Severance, payroll, and other related costs	$	(46	)
Product rationalization		(233	)
Other		13

Total restructuring charges	$	(266	)

(1)	Includes $(55) in charges recorded in cost of revenues on Consolidated Statements of Operations.

Liabilities related to restructuring activities are recorded as current liabilities on the accompanying Consolidated Balance Sheets within “Accrued payroll and other related liabilities” and “Accrued expenses and other.” The following table summarizes our liabilities related to these restructuring activities:


	Fiscal 2010 Restructuring Plan
			Fiscal 2011
	March 31, 2010		Provision			Payments/ Impairments			June 30, 2010
Severance and termination benefits	$	1,894	$	(17	)	$	(246	)	$	1,631
Asset impairments		—		356			(356	)		—
Lease termination obligations		1,200		—			—			1,200
Other		509		7			(44	)		472

Total	$	3,603	$	346		$	(646	)	$	3,303


	Fiscal 2008 Restructuring Plan
			Fiscal 2011
	March 31, 2010		Provision		Payments/ Impairments			June 30, 2010
Severance and termination benefits	$	102	$	—	$	(70	)	$	32
Asset impairments		289		—		—			289
Lease termination obligations		411		—		(76	)		335

Total	$	802	$	—	$	(146	)	$	656

Comprehensive (Loss) Income

3 Months Ended

Jun. 30, 2010

Comprehensive (Loss) Income

3. Comprehensive (Loss) Income

Comprehensive (loss) income includes net (loss) income as currently reported under U.S. GAAP and other comprehensive income. Other comprehensive (loss) income considers the effects of additional economic events that are not required to be recorded in determining net (loss) income, but rather are reported as a separate component of shareholders’ equity. The following table illustrates the components of our comprehensive (loss) income:


	Three Months Ended June 30,
	2010			2009
Net (loss) income	$	(45,210	)	$	25,542
Cumulative foreign currency translation adjustment		(12,959	)		23,984
Amortization of pension and postretirement benefit plans costs, net of taxes		(276	)		(159	)
Unrealized gains (losses) on investments		(120	)		117

Total comprehensive (loss) income	$	(58,565	)	$	49,484

- Definition

This label may include the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains and losses on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains and losses on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain or loss and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References+ Details

Property, Plant and Equipment

3 Months Ended

Jun. 30, 2010

Property, Plant and Equipment

4. Property, Plant and Equipment

Information related to the major categories of our depreciable assets is as follows:


	June 30, 2010			March 31, 2010
Land and land improvements (1)	$	26,120		$	26,234
Buildings and leasehold improvements		191,530			192,722
Machinery and equipment		277,181			276,714
Information systems		103,017			103,056
Radioisotope		178,028			172,489
Construction in progress (1)		30,649			29,614

Total property, plant, and equipment		806,525			800,829
Less: accumulated depreciation and depletion		(461,237	)		(453,971	)

Property, plant, and equipment, net	$	345,288		$	346,858

(1)	Land is not depreciated. Construction in progress is not depreciated until placed in service.

Inventories, Net

3 Months Ended

Jun. 30, 2010

Inventories, Net

5. Inventories, Net

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


	June 30, 2010		March 31, 2010
Raw materials	$	37,737	$	36,170
Work in process		23,193		20,668
Finished goods		71,025		64,297

Inventories, net	$	131,955	$	121,135

Debt

3 Months Ended

Jun. 30, 2010

Debt

6. Debt

Indebtedness was as follows:


	June 30, 2010		March 31, 2010
Private Placement	$	210,000	$	210,000
Credit facility		—		—

Total long term debt	$	210,000	$	210,000

Additional information regarding our indebtedness is included in our Annual Report on Form 10-K for the year ended March 31, 2010, filed with the SEC on May 28, 2010.

Additional Consolidated Balance Sheets Information

3 Months Ended

Jun. 30, 2010

Additional Consolidated Balance Sheets Information

7. Additional Consolidated Balance Sheets Information

Additional information related to our Consolidated Balance Sheets is as follows:


	June 30, 2010		March 31, 2010
Accrued payroll and other related liabilities:
Compensation and related items	$	13,342	$	15,314
Accrued vacation/paid time off		6,237		5,734
Accrued bonuses		2,196		23,457
Accrued employee commissions		4,175		10,565
Other postretirement benefit obligations-current portion		3,340		3,340
Other employee benefit plans’ obligations-current portion		678		576

Total accrued payroll and other related liabilities	$	29,968	$	58,986

Accrued expenses and other:
Deferred revenues	$	26,837	$	27,908
Self-insured risk retention-current portion		4,111		4,956
Accrued dealer commissions		7,009		6,972
Accrued warranty		6,130		6,070
Other		24,486		26,202

Total accrued expenses and other	$	68,573	$	72,108

Other liabilities:
Self-insured risk retention-long-term portion	$	9,987	$	9,986
Other postretirement benefit obligations-long-term portion		20,415		21,839
Defined benefit pension plans’ obligations-long-term portion		10,069		10,179
Other employee benefit plans’ obligations-long-term portion		2,816		2,336
Accrued long-term income taxes		11,178		11,690

Total other liabilities	$	54,465	$	56,030

Income Tax (Benefit) Expense

3 Months Ended

Jun. 30, 2010

Income Tax (Benefit) Expense

8. Income Tax (Benefit) Expense

Income tax (benefit) expense includes United States federal, state and local, and foreign income taxes, and is based on reported pre-tax (loss) income. The effective income tax rates for the three-month periods ended June 30, 2010 and 2009 were 31.3% and 36.1%, respectively. Because the accrual established during the three month period ended June 30, 2010 in connection with the SYSTEM 1 Rebate Program was incurred in the United States at a higher effective tax rate, a higher portion of the projected income before income taxes will be subject to taxes in jurisdictions with lower tax rates.

Income tax expense is provided on an interim basis based upon our estimate of the annual effective income tax rate, adjusted each quarter for discrete items. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and net operating loss carry forwards, and available tax planning alternatives.

As of March 31, 2010, we had $11,788 in unrecognized tax benefits, of which $2,740 would favorably impact the effective tax rate if recognized. As of June 30, 2010, we had $11,193 in unrecognized tax benefits, of which $2,726 would favorably impact the effective tax rate if recognized. The decrease in unrecognized tax benefits for the three months ended June 30, 2010 is primarily due to a decrease in unrecognized tax benefits relating to prior years. We believe that it is reasonably possible that unrecognized tax benefits could decrease by up to $620 within 12 months of June 30, 2010, primarily as a result of audit settlements. As of June 30, 2010, we have recognized a liability for interest of $1,234 and penalties of $141.

We operate in numerous taxing jurisdictions and are subject to regular examinations by various United States federal, state, and local, as well as foreign, jurisdictions. We are no longer subject to United States federal examinations for years before fiscal 2008 and, with limited exceptions, we are no longer subject to United States state and local, or non-United States, income tax examinations by tax authorities for years before fiscal 2006. We remain subject to tax authority audits in various jurisdictions wherever we do business. We do not expect the results of these examinations to have a material adverse affect on our consolidated financial statements.

Benefit Plans

3 Months Ended

Jun. 30, 2010

Benefit Plans

9. Benefit Plans

We provide defined benefit pension plans for certain manufacturing and plant administrative personnel throughout the world as determined by collective bargaining agreements or employee benefit standards set at the time of acquisition of certain businesses. In addition to providing pension benefits to certain employees, we sponsor an unfunded postretirement welfare benefits plan for two groups of United States employees, including the same employees who receive pension benefits under the United States defined benefit pension plans. Benefits under this plan include retiree life insurance and retiree medical coverage, including prescription drug coverage. Additional information regarding our defined benefit pension plans and other postretirement benefits plan is included in our Annual Report on Form 10-K for the year ended March 31, 2010, filed with the SEC on May 28, 2010.

Components of the net periodic benefit cost for our defined benefit pension plans and other postretirement medical benefits plan were as follows:


	Defined Benefit Pension Plans												Other Postretirement Benefits Plan
	U.S. Qualified						International						Other Postretirement Benefits Plan
Three Months Ended June 30,	2010			2009			2010			2009			2010			2009
Service cost	$	47		$	59		$	117		$	79		$	—		$	—
Interest cost		654			761			75			81			292			487
Expected return on plan assets		(758	)		(617	)		(82	)		(97	)		—			—
Recognized losses		267			290			—			—			97			157
Amortization of transition obligation		—			(18	)		—			—			—			—
Amortization of prior service cost		—			—			—			—			(816	)		(816	)

Net periodic benefit cost (income)	$	210		$	475		$	110		$	63		$	(427	)	$	(172	)

We contribute amounts to the defined benefit pension plans at least sufficient to meet the minimum requirements as stated in applicable employee benefit laws and local tax laws. We record liabilities for the difference between the fair value of the plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for other postretirement benefits plans) on our accompanying Consolidated Balance Sheets.

- Definition

Description containing the entire pension and other postretirement benefits disclosure as a single block of text.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 158

-Paragraph 7, 21, 22

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5, 6, 7, 8

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 8

-Subparagraph m

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 106

-Paragraph 518

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 87

-Paragraph 264

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph b

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph a

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph h

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph q

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name FASB Staff Position (FSP)

-Number FAS106-2

-Paragraph 20, 21, 22

Reference 11: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Emerging Issues Task Force (EITF)

-Number 03-2

-Paragraph 8

Reference 12: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Principles Board Opinion (APB)

-Number 30

-Paragraph 26

Reference 13: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Implementation Guide (Q and A)

-Number FAS88

-Paragraph 63

+ Details

Contingencies

3 Months Ended

Jun. 30, 2010

Contingencies

10. Contingencies

We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief.

We believe we have adequately reserved for our current litigation and claims that are probable and estimable, and further believe that the ultimate outcome of these pending lawsuits and claims will not have a material adverse affect on our 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 or effect of current or future litigation, investigations, claims or other proceedings (including without limitation the matters discussed below). For certain types of claims, we presently maintain product liability insurance coverage and other liability coverages in amounts and with deductibles that we believe are prudent, but there can be no assurance that these coverages will be applicable or adequate to cover adverse outcomes of claims or legal proceedings against us.

As previously disclosed, we received a warning letter (the “warning letter”) from the FDA on May 16, 2008 regarding our SYSTEM 1^® sterile processor and the STERIS 20 sterilant used with the processor (sometimes referred to collectively in the FDA letter and in this note 10 as the “device”). Among other matters, the warning letter included the FDA’s assertion that significant changes or modifications had been made in the design, components, method of manufacture, or intended use of the device beyond the FDA’s 1988 clearance, such that the FDA believed a new premarket notification submission (known within FDA regulations as a 510(k) submission) should have been made, and the assertion that our failure to make such a submission resulted in violations of applicable law. On July 30, 2008 (with an Addendum on October 9, 2008), we provided a detailed response contending that the assertions in the warning letter were not correct. On November 4, 2008, we received a letter from the FDA (dated November 3, 2008) in which the FDA stated without elaboration that, after reviewing our response, it disagreed with our position and that a new premarket notification submission was required. After discussions with the FDA regarding the November 3rd letter, we received an additional letter on November 6, 2008 from the FDA. The November 6th letter stated that the intent of the November 3rd letter was to inform us of the FDA’s preliminary disagreement with our response to the warning letter and, before finalizing a position, the FDA reiterated that it wanted to meet with us to discuss the Company’s response, issues related to the warning letter and next steps to resolve any differences between the Company and the FDA. We thereafter met with the FDA and, on January 20, 2009, we announced that we had submitted to the FDA a new liquid chemical sterilant system for 510(k) clearance, and we communicated to Customers that we would continue supporting the existing SYSTEM 1 installed base in the U.S. for at least a two year period from that date.

On December 3, 2009, the FDA provided a notice (“notice”) to healthcare facility administrators and infection control practitioners describing FDA’s “concerns about the SYSTEM 1 Processor, components and accessories, and FDA recommendations.” In the notice, among other things, FDA stated its belief that the SYSTEM 1 device had been significantly modified, that FDA had not cleared or approved the modified device, and that FDA had not determined whether the SYSTEM 1 was safe or effective for its labeled claims. The notice further stated that use of a device that does not properly sterilize or disinfect a medical or surgical device poses risks to patients and users, including the transmission of pathogens, exposure to hazardous chemicals and affect on the quality and functionality of reprocessed instruments. The notice stated that FDA was aware of reports of malfunctions of the SYSTEM 1 that had the potential to cause or contribute to serious injuries to patients, such as infections, or injuries to healthcare staff, such as burns. Included in FDA’s December 3, 2009 notice was a recommendation from FDA that if users had acceptable alternatives to meet sterilization and disinfection needs, they should transition to that alternative as soon as possible. After its December 3, 2009 notice, we engaged in extensive discussions with the FDA regarding a comprehensive resolution of this matter. On February 2, 2010, the FDA notified healthcare facility administrators and infection control practitioners that FDA’s total recommended time period for transitioning from SYSTEM 1 in the U.S. was 18 months from that date. During this transition period in the U.S., we have continued to support the existing SYSTEM 1 installed base by providing accessories, sterilant, service and parts for U.S. Customers.

In April 2010 we reached agreement with the FDA on the terms of a consent decree (“Consent Decree”). On April 19, 2010, a Complaint and Consent Decree were filed in the U.S. District Court for the Northern District of Ohio, and on April 20, 2010, the Court approved the Consent Decree. In general, the Consent Decree addresses regulatory matters regarding SYSTEM 1, restricts further sales of SYSTEM 1 processors in the U.S., defines certain documentation and requirements for continued service and support of SYSTEM 1 in the U.S., prohibits the sale of liquid chemical sterilization or disinfection products in the U.S. that do not have FDA clearance, describes various process and compliance matters, and defines penalties in the event of violation of the Consent Decree.

The Consent Decree also provides that we may continue to support our Customers’ use of SYSTEM 1 in the U.S., including the sale of consumables, parts and accessories and service for a transition period, not to extend beyond August 2, 2011, subject to compliance with requirements for documentation of the Customer’s need for continued support and other conditions and limitations (the “Transition Plan”). Our Transition Plan includes the “SYSTEM 1 Rebate Program” (the “Rebate Program”). In April 2010, we began to offer rebates to qualifying Customers. Generally, U.S. Customers that purchased SYSTEM 1 processors directly from us or who are current users of SYSTEM 1 and who return their units will have the option of either a pro-rated cash rebate or a rebate toward the future purchase of new STERIS capital equipment or consumable products. In addition, we will provide credits for SYSTEM 1 consumables in unbroken packaging and within shelf life and for the unused portion of SYSTEM 1 service contracts. As a result of the Rebate Program, we recorded a pre-tax liability of $110,004 related to the SYSTEM 1 Rebate Program. Of the $110,004, $102,313 is attributable to the Customer Rebate portion of the Program and was recorded as a reduction of revenues, and $7,691 is attributable to the disposal liability of the SYSTEM 1 units to be returned and was recorded as an increase in cost of revenues. This also resulted in a $110,004 reduction in operating income.

Recording the obligations associated with the Rebate Program requires the use of estimates and assumptions. The use of estimates and assumptions involves judgments with respect to factors that may impact the ultimate outcome and may be beyond management’s control. The amount recognized during the first quarter of fiscal 2011 is based upon the quantity of SYSTEM 1 processors eligible for rebates and the estimated value of rebates to be provided upon their return. Rebates of $102,313 are recognized as contra-revenue consistent with other returns and allowances offered to Customers. The estimated cost of $7,691 to facilitate the return and disposal of the processors has been recognized as cost of revenues. Both components are recorded as current liabilities. No rebate obligations were settled during the three months ended June 30, 2010. The key assumptions involved in the estimates associated with the Rebate Program include: the number and age of SYSTEM 1 processors eligible for rebates under the Rebate Program, the number of Customers that will elect to participate in the Rebate Program, the proportion of Customers that will choose each rebate option, and the estimated per unit costs of disposal.

The number and age of SYSTEM 1 processors has been estimated based on our historical sales and service records and we have assumed that 100% of eligible Customers will elect to participate in the Rebate Program. In order to estimate the portion of Customers that will choose each available rebate option, we first assessed recent trends in sales of the proprietary consumable products utilized in the SYSTEM 1 processor. The 19% decline in shipments during the approximately seven month period ended June 30, 2010 indicates that a portion of our Customers have already transitioned away from the SYSTEM 1 technology. The remaining 81%, provides the best available indication of the portion of Customers likely to elect the rebate for the SYSTEM 1E processor. Order and quote data from the fiscal 2011 first quarter provided indications of the proportion of Customers that are expected to choose each of the other cash and Rebate options. The per unit costs associated with disposal were estimated based on the service hours involved and quotes from our vendors which are based on current freight and disposal contracts.

Our assumptions regarding the response of our Customers to the Rebate Program could be wrong and actual results could be different from these estimates. For example, if all Customers elected the maximum incentive rebate associated with the SYSTEM 1E processor rebate, the total estimated rebate liability of $102,313 would increase to approximately $111,000. Conversely, if all Customers elected the cash rebate option, the total estimated rebate liability would decrease to approximately $52,000.

Also, in April 2010 we voluntarily submitted information regarding modifications to the Reliance™ EPS Endoscope Processing System (the “EPS System”) to the FDA. These incremental modifications to the EPS System were considered minor by us. FDA has recently advised us that it believes a new pre-market notification (510(k)) for those modifications should be submitted. We have submitted the pre-market notification to the FDA. We have suspended shipments of EPS Systems in the U.S. until we receive FDA clearance of the submission. FDA has agreed that we may continue servicing EPS Systems in the field and provide consumables necessary for the continued use of the EPS Systems. We do not believe the impact of these events will be material with respect to our financial results.

The Consent Decree has defined the resolution of a number of issues regarding SYSTEM 1, and we believe our actions since January 2009 with respect to SYSTEM 1, including the Transition Plan, were and are not recalls, corrections or removals under FDA regulations. However, there is no assurance that other claims will not be brought or that judicial, regulatory, administrative or other legal or enforcement actions, notices or remedies will not be pursued, or that action will not be taken in respect of the Consent Decree, the Transition Plan, SYSTEM 1, the EPS System, or otherwise with respect to regulatory or compliance matters, as described in this note 10 or in various portions of Item 1A. of Part I contained in our Annual Report on Form 10-K for the year ended March 31, 2010, filed with the SEC on May 28, 2010. On February 5, 2010, a complaint was filed by a Customer who claims to have purchased two SYSTEM 1 devices from STERIS, Physicians of Winter Haven LLC d/b/a Day Surgery Center v. Steris Corp., Case No. 1:1-cv-00264-CAB (N.D. Ohio). The complaint alleges statutory violations, breaches of various warranties, negligence, failure to warn, and unjust enrichment. Plaintiff seeks class certification, damages, and other legal and equitable relief including, without limitation, attorneys’ fees and an order requiring STERIS to replace, recall or adequately repair the product and/or to take appropriate regulatory action. We are evaluating this matter and expect to defend against these allegations. This proceeding or other civil, criminal, regulatory or other proceedings involving our SYSTEM 1, SYSTEM 1E, EPS System, or other products or services could possibly result in judgments, settlements or administrative or judicial decrees requiring us, among other actions, to pay damages or fines or effect recalls, or be subject to other governmental, Customer or other third party claims or remedies, which could materially affect our business, performance, prospects, value, financial condition, and results of operations.

For additional information regarding these matters, see the following portions of our Annual Report on Form 10-K for the year ended March 31, 2010: “Business – Information with respect to our Business in General – Recent Events – Government Regulation”, and the “Risk Factor” titled: “We may be adversely affected by product liability claims or other legal actions or regulatory or compliance matters, including the Warning Letter and Consent Decree.”, the “Risk Factor” titled: “Our business may be adversely affected as a result of the U.S. Food and Drug Administration notices to healthcare administrators and device manufacturers, and related matters,” and the “Risk Factor” titled “Compliance with the Consent Decree may be more costly and burdensome than anticipated.”

From time to time, STERIS is also involved in legal proceedings as a plaintiff involving contract, patent protection, and other claims asserted by us. Gains, if any, from these proceedings are recognized when they are realized.

We are subject to taxation from United States federal, state, and local, and foreign jurisdictions. Tax positions are settled primarily through the completion of audits within each individual jurisdiction or the closing of statute of limitation. Changes in applicable tax law or other events may also require us to revise past estimates. We describe income taxes further in Note 8 to our consolidated financial statements titled, “Income Tax (Benefit) Expense”, and in our Annual Report on Form 10-K for the year ended March 31, 2010 filed with the SEC on May 28, 2010.

Business Segment Information

3 Months Ended

Jun. 30, 2010

Business Segment Information

11. Business Segment Information

We operate and report in three business segments: Healthcare, Life Sciences, and Isomedix. “Corporate and other,” which is presented separately, contains the Defense and Industrial business unit plus costs that are associated with being a publicly traded company and certain other corporate costs.

Our Healthcare segment manufactures and sells infrastructure capital equipment, accessory, consumable, and service solutions to healthcare providers, including acute care hospitals and surgery centers. These solutions aid our Customers in improving the safety, quality, and productivity of their surgical, sterile processing, gastrointestinal, and emergency environments.

Our Life Sciences segment manufactures and sells a broad range of capital equipment, formulated cleaning chemistries, and service solutions to pharmaceutical companies, and private and public research facilities around the globe.

Our Isomedix segment operates through a network of 19 facilities located in North America. We sell a comprehensive array of contract sterilization services using gamma irradiation and ethylene oxide (“EO”) technologies. We provide sterilization and microbial reduction services to companies that supply products to the healthcare, industrial, and consumer products industries.

Financial information for each of our segments is presented in the following table. Operating income (loss) for each segment is calculated as the segment’s gross profit less direct expenses and indirect cost allocations, which results in the full allocation of all distribution and research and development expenses, and the partial allocation of corporate costs. These allocations are based upon variables such as segment headcount and revenues. In addition, the Healthcare segment is responsible for the management of all but one manufacturing facility and uses standard cost to sell products to the Life Sciences segment. “Corporate and other” includes the gross profit and direct expense of the Defense and Industrial business unit, as well as certain unallocated corporate costs related to being a publicly traded company and legacy pension and post-retirement benefits.

The accounting policies for reportable segments are the same as those for the consolidated Company. For the three month period ended June 30, 2010, revenues from a single Customer did not represent ten percent or more of any reportable segment’s revenues. Additional information regarding our segments is included in our Annual Report on Form 10-K for the year ended March 31, 2010, filed with the SEC on May 28, 2010.

Financial information for each of our segments is presented in the following tables:


	Three Months Ended June 30,
	2010			2009
Revenues:
Healthcare (1)	$	103,766		$	200,604
Life Sciences		46,614			46,116
Isomedix		37,676			35,407

Total reportable segments		188,056			282,127
Corporate and other		924			1,416

Total revenues	$	188,980		$	283,543

Operating income (loss):
Healthcare (2)	$	(77,912	)	$	32,102
Life Sciences		6,295			4,779
Isomedix		10,584			8,339

Total reportable segments		(61,033	)		45,220
Corporate and other		(1,968	)		(2,358	)

Total operating (loss) income	$	(63,001	)	$	42,862

(1)	Includes a reduction of $102,313 resulting from the SYSTEM 1 Rebate Program during the three months ended June 30, 2010.

(2)	Includes a reduction of $110,004 resulting from the SYSTEM 1 Rebate Program during the three months ended June 30, 2010.

Common Shares

3 Months Ended

Jun. 30, 2010

Common Shares

12. Common Shares

We calculate basic earnings per common share based upon the weighted average number of common shares outstanding. We calculate diluted earnings per share based upon the weighted average number of common shares outstanding plus the dilutive effect of common share equivalents calculated using the treasury stock method. The following is a summary of common shares and common share equivalents outstanding used in the calculations of basic and diluted earnings per share:


	Three Months Ended June 30,
	2010	2009
Denominator (shares in thousands):
Weighted average common shares outstanding—basic	59,397	58,517
Dilutive effect of common share equivalents	—	325

Weighted average common shares outstanding and common share equivalents—diluted	59,397	58,842

The denominator in the computation of earnings per share for the three months ended June 30, 2010 does not include the potentially dilutive effect of common share equivalents because the numerator is a net loss. Inclusion would result in an antidilutive effect.

Options to purchase the following number of common shares were outstanding but excluded from the computation of diluted earnings per share because the combined exercise prices, unamortized fair values, and assumed tax benefits upon exercise were greater than the average market price for the common shares during the periods, so including these options would be anti-dilutive:


	Three Months Ended June 30,
	2010	2009
	(shares in thousands)
Number of common share options	380	2,163

Repurchases of Common Shares	3 Months Ended
Repurchases of Common Shares	Jun. 30, 2010
Repurchases of Common Shares	13. Repurchases of Common Shares We did not repurchase any of our common shares during the first three months of fiscal 2011. At June 30, 2010, $203,864 of STERIS common shares remained authorized for repurchase pursuant to a March 2008 Board Authorization. Also, 10,461,229 common shares were held in treasury at June 30, 2010.

Share-Based Compensation

3 Months Ended

Jun. 30, 2010

Share-Based Compensation

14. Share-Based Compensation

We maintain a long-term incentive plan that makes available common shares for grants at the discretion of the Compensation Committee of the Board of Directors to officers, directors, and key employees in the form of stock options, restricted shares, restricted share units, and stock appreciation rights. Stock options provide the right to purchase our common shares at the market price on the date of grant, subject to the terms of the option plans and agreements. Generally, one-fourth of the stock options granted become exercisable for each full year of employment following the grant date. Stock options granted generally expire 10 years after the grant date, or earlier if the option holder is no longer employed by us. Certain option agreements have provisions that provide for an adjustment to the normal vesting schedule allowing the options to vest on a prorated basis, as defined by the agreement in the event of employment termination. Restricted shares and restricted share units generally cliff vest over a three or four year period. As of June 30, 2010, 3,529,396 shares remain available for grant under the long-term incentive plan.

The fair value of share-based compensation awards was estimated at their grant date using the Black-Scholes-Merton option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics that are not present in our option grants. If the model permitted consideration of the unique characteristics of employee stock options, the resulting estimate of the fair value of the stock options could be different. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Income. The expense is classified as cost of goods sold or selling, general and administrative expenses in a manner consistent with the employee’s compensation and benefits.

The following weighted-average assumptions were used for share-based compensation granted during the first quarter of fiscal 2011 and fiscal 2010:


	Fiscal 2011	Fiscal 2010
Risk-free interest rate	2.73%	1.82%
Expected life of options	5.52 years	5.43 years
Expected dividend yield of stock	1.54%	1.49%
Expected volatility of stock	30.19%	27.94%

The risk-free interest rate is based upon the U.S. Treasury yield curve. The expected life of options is reflective of historical experience, vesting schedules and contractual terms. The expected dividend yield of stock represents our best estimate of the expected future dividend yield. The expected volatility of stock is derived by referring to our historical stock prices over a timeframe similar to that of the expected life of the grant. We applied estimated forfeiture rates of 2.27 percent and 2.39 percent during fiscal 2011 and 2010, respectively. This rate is calculated based upon historical activity and represents an estimate of the granted options not expected to vest. If actual forfeitures differ from this calculated rate, we may be required to make additional adjustments to compensation expense in future periods. The assumptions used above are reviewed at the time of each significant option grant, or at least annually.

A summary of share option activity is as follows:


	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at March 31, 2010	3,599,221		$	24.96
Granted	243,500			31.87
Exercised	(117,899	)		17.82
Forfeited	(4,525	)		27.13
Canceled	(2,953	)		33.93

Outstanding at June 30, 2010	3,717,344		$	25.63	6.05	$	20,594
Exercisable at June 30, 2010	2,515,060		$	24.83	4.94	$	15,809

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $31.08 closing price of our common shares on June 30, 2010 over the exercise price of the stock option, multiplied by the number of options outstanding or outstanding and exercisable, as applicable. The aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on the daily changes in the fair market value of our common shares.

The total intrinsic value of stock options exercised during the first three months of fiscal 2011 and fiscal 2010 was $1,695 and $131, respectively. Net cash proceeds from the exercise of stock options were $2,226 and $152 for the first three months of fiscal 2011 and fiscal 2010, respectively. An income tax benefit of $659 and $47 was realized from stock option exercises during the first three months of fiscal 2011 and fiscal 2010, respectively.

The weighted average grant date fair value of stock option grants was $8.82 and $5.52 for the first three months of fiscal 2011 and fiscal 2010, respectively.

Stock appreciation rights (“SARS”) carry generally the same terms and vesting requirements as stock options except that they are settled in cash upon exercise and therefore, are classified as liabilities. The fair value of the outstanding SARS as of June 30, 2010 and 2009 was $149 and $263, respectively. The fair value of each outstanding SAR is revalued at each reporting date and the related liability and expense are adjusted appropriately.

A summary of the non-vested restricted share and restricted share unit activity is presented below:


	Number of Restricted Shares	Number of Restricted Share Units	Weighted-Average Grant Date Fair Value
Non-vested at March 31, 2010	222,590	23,000	$	26.80
Granted	233,104	—		31.91
Vested	—	—		—
Canceled	—	—		—

Non-vested at June 30, 2010	455,694	23,000	$	29.29

Restricted shares and restricted share units granted are valued based on the closing stock price at the grant date and are estimated to cliff vest over a three or four year period based upon the terms of the grants. The value of restricted shares and restricted share units that vested during the first three months of fiscal 2010 was $483.

Cash settled restricted share units carry generally the same terms and vesting requirements as restricted share units except that they are settled in cash upon vesting and therefore, are classified as liabilities. The fair value of outstanding cash-settled restricted share units as of June 30, 2010 and 2009 was $827 and $155, respectively. The fair value of each cash-settled restricted share unit is revalued at each reporting date and the related liability and expense are adjusted appropriately.

As of June 30, 2010, there was a total of $13,101 in unrecognized compensation cost related to nonvested share-based compensation granted under our share-based compensation plans. We expect to recognize the cost over a weighted average period of 2.26 years.

Financial and Other Guarantees

3 Months Ended

Jun. 30, 2010

Financial and Other Guarantees

15. Financial and Other Guarantees

We generally offer a limited parts and labor warranty on capital equipment. The specific terms and conditions of those warranties vary depending on the product sold and the countries where we conduct business. We record a liability for the estimated cost of product warranties at the time product revenues are recognized. The amounts we expect to incur on behalf of our Customers for the future estimated cost of these warranties are recorded as a current liability on the accompanying Consolidated Balance Sheets. Factors that affect the amount of our warranty liability include the number and type of installed units, historical and anticipated rates of product failures, and material and service costs per claim. We periodically assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.

Changes in our warranty liability during the first three months of fiscal 2011 were as follows:


Balance, March 31, 2010	$	6,070
Warranties issued during the period		2,395
Settlements made during the period		(2,335	)

Balance, June 30, 2010	$	6,130

We also sell product maintenance contracts to our Customers. These contracts range in terms from one to five years and require us to maintain and repair the product over the maintenance contract term. We initially record amounts due from Customers under these contracts as a liability for deferred service contract revenue on the accompanying Consolidated Balance Sheets within “Accrued expenses and other.” The liability recorded for such deferred service revenue was $17,512 and $17,709 as of June 30, 2010 and March 31, 2010, respectively. Such deferred revenue is then amortized on a straight-line basis over the contract term and recognized as service revenue on our accompanying Consolidated Statements of Income. The activity related to the liability for deferred service contract revenues is excluded from the table presented above.

Forward and Swap Contracts

3 Months Ended

Jun. 30, 2010

Forward and Swap Contracts

16. Forward and Swap Contracts

From time to time, we enter into forward contracts to hedge potential foreign currency gains and losses that arise from transactions denominated in foreign currencies, including inter-company transactions. We also enter into commodity swap contracts to hedge price changes in commodities that impact raw materials included in our cost of revenues. We do not use derivative financial instruments for speculative purposes. These contracts are not designated as hedging instruments and do not receive hedge accounting treatment; therefore, changes in their fair value are not deferred but are recognized immediately in the Consolidated Statements of Income.


	Asset Derivatives				Liability Derivatives
Balance Sheet Location	Fair Value at June 30, 2010		Fair Value at March 31, 2010		Fair Value at June 30, 2010		Fair Value at March 31, 2010
Prepaid & Other	$	174	$	992	$	—	$	—
Accrued expenses and other	$	—	$	—	$	1,322	$	—

The following table presents the impact of derivative instruments and their location within the Consolidated Statements of Income:


	Location of gain (loss) recognized in income	Amount of gain (loss) recognized in income
		Three months ended June 30,
		2010			2009
Foreign currency forward contracts	Selling, general and administrative	$	(834	)	$	256
Commodity swap contracts	Cost of revenues	$	(781	)	$	—

Fair Value Measurements

3 Months Ended

Jun. 30, 2010

Fair Value Measurements

17. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. We estimate the fair value of financial instruments using available market information and generally accepted valuation methodologies. The inputs used to measure fair value are classified into three tiers. These tiers include Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring the entity to develop its own assumptions. The following table shows our financial assets and liabilities accounted for at fair value on a recurring basis at June 30, 2010:


			Fair Value Measurements at June 30, 2010 Using
	June 30, 2010		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	June 30, 2010		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	226,070	$	226,070	$	—	$	—
Forward and swap contracts (1)		174		—		174		—
Investments (2)		1,961		1,961		—		—
Liabilities:
Forward and swap contracts (1)	$	1,322	$	—	$	1,322	$	—
Deferred compensation plans (2)		1,966		1,966		—		—

(1)	The fair values of forward and swap contracts are based on period-end forward rates and reflect the value of the amount that we would pay or receive for the contracts involving the same notional amounts and maturity dates.

(2)

We provide a domestic non-qualified deferred compensation plan covering certain employees, which allows for the deferral of compensation for an employee-specified term or until retirement or termination. Amounts deferred can be allocated to various hypothetical investment options. We hold investments to satisfy the future obligations of the plan. Changes in the value of the investment accounts are recognized each period based on the fair value of the underlying investments. Employees making deferrals are entitled to receive distributions of their hypothetical account balances (amounts deferred, together with earnings (losses)).

- Definition

This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods.

+ References+ Details

Subsequent Events

3 Months Ended

Jun. 30, 2010

Subsequent Events

18. Subsequent Events

We have evaluated subsequent events through the date the financial statements were filed with the SEC, noting no events that require adjustment of, or disclosure in, the consolidated financial statements for the period ended June 30, 2010. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the 2010 Annual Report on Form 10-K.