carrying value of trade accounts receivable, inventories, recording 
self-insurance liabilities and other accrued liabilities.  Actual 
results could differ from these estimates.  The following critical 
accounting policies are impacted sign ificantly by judgments, 
assumptions and estimates used in the preparati on of the 
consolidated financial statements. 
LIFO Inventory Valuati on and Methodology 
Inventories are valued at  the lower of cost or market, using the 
last-in, first-out (LIFO) method for U.S. inventories, and the 
average cost method for foreign inventories.  We adopted the 
link chain dollar value LIFO method for accounting for U.S. 
inventories in fiscal 1974.  Approximately 37% of our domestic 
inventory dollars relate to LIFO layers added in the 1970s.  The 
excess of current cost over LIFO cost is $144.8 million as reflected 
in our consolidated balance sheet at June 30, 2012.  The 
Company maintains five LIFO pools based on t he following 
product groupings: bearings, power transmission products, 
rubber products, fluid power products and other products. 
LIFO layers and/or liquidations are determined consistently year-
to-year.  See the Inventories note to the conso li dated financial 
statements for further information. 
Allowances for Slow-Movi ng and  
Obsolete Inventories 
We evaluate the recoverability of our slow-moving or obsolete 
inventories at least quarterly.  We estimate the recoverable cost 
of such inventory by product type while considering factors such 
as its age, historic and current demand trends, the physical 
condition of the inventory, as well as assumptions regarding 
future demand
.  Our ability to recover our cost for slow moving 
or obsolete inventory can be a ffected by such factors as general 
market conditions, future customer demand and relationships 
with suppliers.  Most of the products we hold in inventory have 
long shelf lives, are not highly susceptible to obsolescence and 
are eligible for return under various supplier return programs. 
Allowances for Doubtful Accounts 
We evaluate the collectibility of tr ade accounts receivable based 
on a combination of factors.  Initially, we estimate an allowance 
for doubtful accounts as a percentage of net sales based on 
historical bad debt experience .  This initial estimate is adjusted 
based on recent trends of certain customers and industries 
estimated to be a greater credit risk, trends within the 
  
11Applied Industrial Technologies, Inc. and Subsidiaries
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