entire customer pool and changes in the overall aging of  accounts receivable. While we have a large customer base that is  geographically dispersed, a general economic downturn in any of  the industry segments in which we operate could result in higher  than expected defaults, and therefore, the need to revise  estimates for bad debts. Accounts are written off against the  allowance when it becomes evident collection will not occur.  As of June 30, 2012 and 2011, our allowance for doubtful  accounts was 2.6% and 2.4% of gross receivables, respectively. Our provision for losses on accounts receivable was $3.9 million,  $2.0 million and $2.5 million in fiscal 2012, 2011 and 2010,  respectively.  Goodwill is recognized as the amount by which the cost of an  acquired entity exceeds the net amount assigned to assets acquired  and liabilities assumed. As part of acquisition accounting, we also  recognize acquired intangible assets such as customer  relationships, vendor relationships, trade names, and non- competition agreements apart from goodwill. Finite-lived  intangibles are evaluated for impairment when changes in  conditions indicate carrying value may not be recoverable. We  evaluate goodwill and indefinite-lived intangibles for impairment at  least annually. This evaluation requires significant judgment by  management, including estimated future operating results,  estimated future cash flows, the long-term rate of growth of our  business, and determination of an appropriate discount rate. While we use available information to prepare the estimates and  evaluations, actual results could differ significantly. For example, a  worsening of economic conditions beyond those assumed in an  impairment analysis could impact the estimates of future growth  and result in an impairment charge in a future period. Any  resulting impairment charge could be viewed as having a material  adverse impact on our financial condition and results of operations.  All of the goodwill remaining on our consolidated financial  statements is related to the Service Center Based Distribution  segment. We believe the fair value of this segment is well in  excess of its carrying value.  We maintain business insurance programs with significant self- insured retention covering workers’ compensation, business,  automobile, general product liability and other claims. We accrue  estimated losses using actuarial calculations, models and  assumptions based on historical loss experience. We maintain a  self-insured health benefits plan, which provides medical benefits  to U.S. based employees electing coverage. We maintain a reserve  for all unpaid medical claims including those incurred but not  reported based on historical experience and other assumptions. Deferred income taxes are recorded for estimated future tax effects  of differences between the bases of assets and liabilities for  financial reporting and income tax purposes, giving consideration  to enacted tax laws. As of June 30, 2012, the Company had  recognized $34.4 million of net deferred tax assets. This includes a  $0.2 million valuation allowance recorded related to estimated  limitations in the deductibility of certain expenses. Management  believes that sufficient income will be earned in the future to  realize its deferred income tax assets. The realization of these  deferred tax assets can be impacted by changes to tax laws,  statutory tax rates and future taxable income levels.  Effective December 31, 2011, participant benefits and entry into  the SERP was frozen. As such, compensation increases no longer  have an impact on the postemployment liability or the associated  periodic benefit cost. Additionally, a 1% change in the return on  assets is not material since most of the plans are non-qualified  and unfunded.  The measurement of liabilities related to pension plans and other postemployment benefit plans is based on management’s  assumptions related to future events including interest rates,  return on pension plan assets, and healthcare cost trend rates. We evaluate these assumptions and adjust them as necessary. Changes to these assumptions could result in a material change  to the Company’s pension obligation causing a related increase  or decrease in reported net operating results in the period of  change in the estimate. At June 30, 2012, a 1% point change  would have the following effects (in thousands): Although management believes that the estimated liabilities for  self-insurance are adequate, the estimates described above may  not be indicative of current and future losses. In addition, the  actuarial calculations used to estimate self-insurance liabilities are  based on numerous assumptions, some of which are subjective. We will continue to adjust our estimated liabilities for self- insurance, as deemed necessary, in the event that future loss  experience differs from historical loss patterns.  Goodwill and Intangibles  Pension and Other Postemployment Benefit Plans  Income Taxes  Self-Insurance Liabilities  One-Percentage Point  Effect of change in:  -Increase Decrease  Discount rate on liability  $ (3,501)  )  $ 3,965  Discount rate on net periodic benefit cost  (117)  130  11 Applied Industrial Technologies, Inc. and Subsidiaries