Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

Grubb & Ellis Company and its consolidated subsidiaries are referred to herein as “the Company,” “Grubb & Ellis,” “we,” “us,” and “our.” Grubb & Ellis, a Delaware corporation founded over 50 years ago, is a commercial real estate services and investment company. With approximately 5,000 professionals in more than 100 company-owned and affiliate offices throughout the United States (“U.S.”), our professionals draw from a platform of real estate services, practice groups and investment products to deliver comprehensive, integrated solutions to real estate owners, tenants, investors, lenders and corporate occupiers. Our range of services includes tenant representation, property and agency leasing, commercial property and corporate facilities management, property sales, appraisal and valuation and commercial mortgage brokerage and investment management. Our transaction, management, consulting and investment services are supported by proprietary market research and extensive local expertise. Through our investment management business, we are a sponsor of real estate investment programs, including public non-traded real estate investment trusts (“REITs”).

Recent Strategic and Financing Initiatives

Credit Facility

On March 21, 2011, we announced that we had retained JMP Securities LLC as an advisor to explore strategic alternatives for the Company, including a potential merger or sale transaction. On March 30, 2011, we entered into a commitment letter and exclusivity agreement with Colony Capital Acquisitions, LLC, pursuant to which Colony Capital Acquisitions, LLC and one or more of its affiliates (collectively, “Colony”) agreed to provide an $18.0 million senior secured multiple draw term loan credit facility (“Credit Facility”).

On October 16, 2011, we entered into a second amendment (“Credit Facility Amendment No. 2”) increasing from $18.0 million to $28.0 million the size of our Credit Facility. Pursuant to the Credit Facility Amendment No. 2, C-III Investments LLC (“C-III”) agreed to become a lender under the Credit Facility and to provide an additional $10.0 million term loan (the “Incremental Term Loan”) under the existing terms and conditions of the Credit Facility, as amended by Credit Facility Amendment No. 2. In furtherance of the transactions contemplated by the Credit Facility Amendment No. 2, C-III acquired $4.0 million of Colony’s interest in the Credit Facility, and an agreed upon share of the Existing Warrants.

In consideration of C-III providing the Incremental Term Loan and Colony consenting to the Credit Facility Amendment No. 2, we entered into an exclusivity agreement (the “Exclusivity Agreement”) with Colony and C-III pursuant to which Colony and C-III have the exclusive right for a period of thirty days commencing on October 16, 2011, and subject to two consecutive thirty day extensions under certain circumstances, to pursue a strategic transaction with respect to the Company. In the event that Colony and C-III are diligently pursuing a strategic transaction with us at the end of each of the initial thirty day period (November 15, 2011) and the first thirty day extension (December 15, 2011), Colony and C-III shall have the right to extend the exclusivity period for an additional thirty days. We have been advised by representatives of C-III that they will be extending the exclusivity period for this initial 30 day period until at least December 15, 2011.

Notwithstanding such exclusivity, in the event we receive an unsolicited qualified offer from a third party during the exclusivity period, at any time subsequent to the sixtieth day of exclusivity we shall have the right to request that Colony and C-III match such unsolicited qualified offer within three business days, and if Colony and C-III fail to match such unsolicited qualified offer within three business days and the third party purchases all of the indebtedness and other outstanding obligations of the lenders under the amended Credit Facility, the Exclusivity Agreement shall automatically terminate and we may negotiate and enter into a transaction with such third party. We are also obligated to pay the reasonable costs to effect the transactions contemplated by the Credit Facility Amendment No. 2, up to $0.2 million, and the reasonable costs of C-III under the Exclusivity Agreement, up to $1.0 million. See Note 6 for further information on the Credit Facility.

Sale of Daymark

On February 10, 2011, we announced the creation of Daymark Realty Advisors, Inc. (“Daymark”), a wholly owned and separately managed subsidiary that was responsible for the management of our tenant-in-common portfolio. Subsequent thereto we announced that we had retained FBR Capital Markets & Co. to explore strategic alternatives with respect to Daymark and its portfolio, which includes over 8,700 multi-family units and approximately 30.0 million square feet of real estate.

On August 10, 2011, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and between us and IUC-SOV, LLC (the “Purchaser”), an entity affiliated with Sovereign Capital Management and Infinity Real Estate. Pursuant to the Purchase Agreement, we sold to Purchaser all of the shares of common stock of Daymark. The closing (the “Closing”) of the transactions contemplated by the Purchase Agreement (the “Transactions”) was completed on August 10, 2011.

Pursuant to the Purchase Agreement, we sold to Purchaser all of the outstanding shares of Daymark in exchange for (1) a cash payment of $0.5 million (the “Estimated Closing Cash Payment”) from Purchaser and (2) the assumption by Purchaser of $10.7 million of the net intercompany balance payable from us to NNN Realty Advisors, Inc. (“NNNRA”), a wholly owned subsidiary of Daymark.

Pursuant to the Purchase Agreement, immediately after the completion of the sale of the Daymark shares (and after NNNRA had become a wholly owned subsidiary of the Purchaser), the Company (1) paid NNNRA a $0.5 million cash payment and (2) issued to NNNRA a $5.0 million promissory note (the “Promissory Note”) in full satisfaction of the remaining portion of the Company’s net intercompany balance payable to NNNRA that was not assumed by Purchaser.

We recorded a gain on sale, net of taxes of $8.3 million, of approximately $17.2 million related to the disposition of Daymark in the third quarter of 2011, after recording the $5.0 million Promissory Note, writing off all of the assets, liabilities and noncontrolling interests associated with Daymark and recognizing the costs related to such transaction.

Pursuant to the Purchase Agreement, we have agreed to indemnify, subject to various limitations, Purchaser and its affiliates against any losses incurred or suffered by them as a result of (1) the breach of any representation or warranty made by us in the Purchase Agreement (subject to applicable survival limitations); (2) the breach of any covenant or agreement made by us in the Agreement; (3) any claim for brokerage or finder’s fees payable by Daymark or any of its subsidiaries in connection with the Transactions; (4) any liabilities or claims to the extent arising from the actions or omissions of (A) the Seller and its subsidiaries (other than Daymark and its subsidiaries) and (B) Daymark and its subsidiaries prior to the Closing, in each case, related to the office building at 7551 Metro Center Drive in Austin Texas (“Met Center 10”) (provided that indemnification for Met Center 10 (x) shall not cover any legal fees and expenses that were paid prior to Closing and (y) shall not cover any legal fees and expenses that have not been paid prior to the Closing except to the extent (and only to the extent) that they exceed $0.65 million); (5) certain liabilities under various employment agreements, plans and policies; or (6) fraud by Seller or any of its subsidiaries (other than Daymark or any of its subsidiaries).

Pursuant to the Purchase Agreement, the Purchaser has agreed to indemnify, subject to limitations, us and our affiliates against any losses incurred or suffered by them as a result of (1) the breach of any representation or warranty made by Purchaser in the Purchase Agreement (subject to applicable survival limitations); (2) the breach of any covenant or agreement made by Purchaser in the Purchase Agreement; (3) any liabilities of, obligations of or claims against us or any of our subsidiaries related to or arising from the business or operations of Daymark or any of its subsidiaries (whether relating to matters that occurred, arose or were asserted prior to the Closing or relating to matters that occur, arise or are asserted after the Closing), including existing and future litigation and claims, non-recourse carve-out guarantees and other guaranty obligations of us and our subsidiaries (provided that Purchaser shall not be obligated to indemnify Seller or its affiliates for losses of Seller or its affiliates that are the result of (x) certain litigation matters or (y) fraud by Seller); (4) the first $0.65 million of legal fees and expenses relating to Met Center 10 that have not been paid prior to the Closing; and (5) fraud by Purchaser or any of its subsidiaries. Among other indemnification limitations, the liability of Purchaser for indemnifying us and our affiliates for liabilities, obligations or claims related to or arising from the business or operations of Daymark or its subsidiaries as described in clause (3) above (if related solely to any fact, event or circumstances prior to the Closing) shall not exceed $7.5 million in the aggregate.

The $5.0 million principal amount of the Promissory Note issued by us to NNNRA becomes due and payable on August 10, 2016 (the “Maturity Date”). Interest accrues on the unpaid principal of the Promissory Note at a rate equal to 7.95% per annum. Accrued and unpaid interest on the Promissory Note is payable on the last day of each calendar quarter (commencing on September 30, 2011) and on the Maturity Date. We may prepay all or any portion of the Promissory Note at any time without premium or penalty.

Upon a change of control of the Company or certain Company recapitalization events, we will be obligated to prepay, within 10 business days following the date of such event, an amount equal to the sum of (A) an amount of principal (the “Mandatory Principal Prepayment Amount”) equal to the lesser of (i) $3.0 million and (ii) the then-outstanding principal amount of the Promissory Note plus (B) all accrued and unpaid interest on the Mandatory Principal Prepayment Amount.

Events of default under the Promissory Note include (i) a default by us in the payment of any interest or principal on the Promissory Note when due and such default continues for a period of 10 days after written notice from the holder and (ii) we become subject to any final and non-appealable writ, judgment, warrant of attachment, execution or similar process that would cause a material adverse effect on the financial condition of us and our subsidiaries, taken as a whole. Upon the occurrence of an event of default, the holder of the Promissory Note may declare and demand the Promissory Note immediately due and payable. As a result of such material adverse change clause, we have classified the entire $5.0 million Promissory Note as a current liability.

In connection with the closing of the Transactions, we, Daymark and each of Daymark’s subsidiaries entered into an Intercompany Balance Settlement and Release Agreement dated August 10, 2011 (the “IBSRA”). Pursuant to the IBSRA, Daymark and its subsidiaries released us from any and all claims, obligations, contracts, agreements, debts and liabilities that Daymark and its subsidiaries now have, have ever had or may in the future have against us arising at the time of or prior to the Closing or on account of or arising out of any matter, fact or event occurring at the time of or prior to the Closing, including (1) all rights and obligations under that certain Services Agreement dated as of January 1, 2011 by and among us, Daymark and other parties thereto (the “Services Agreement”), (2) all other contracts and arrangements between Daymark or any of its subsidiaries and us, (3) all intercompany payables and any other financial obligations or amounts owed to Daymark or any of its subsidiaries by us and (4) rights to indemnification or reimbursement from us, subject to various exceptions. Daymark and its subsidiaries also waived rights to coverage under D&O insurance policies maintained by us.

Pursuant to the IBSRA, we released Daymark and each of its subsidiaries from any and all claims, obligations, contracts, agreements, debts and liabilities that we now have, have ever had or may in the future have against Daymark or any of its subsidiaries arising at the time of or prior to the Closing or on account of or arising out of any matter, fact or event occurring at the time of or prior to the Closing, including (1) all rights and obligations under the Services Agreement, (2) all other contracts and arrangements between us and Daymark or any of its subsidiaries, (3) all intercompany payables and any other financial obligations or amounts owed to us by Daymark or any of its subsidiaries and (4) rights to indemnification or reimbursement from Daymark or any of its subsidiaries, subject to various exceptions.

Sale of Alesco

On June 1, 2011, we entered into a definitive agreement for the sale of substantially all of the assets of our real estate investment fund business, Alesco Global Advisors (“Alesco”), to Lazard Asset Management LLC. Closing of the transaction occurred on September 23, 2011. We recognized a loss on the sale of Alesco, net of taxes, of approximately $1.8 million in the third quarter of 2011 after writing off the assets, liabilities and deficit balance in noncontrolling interests associated with Alesco and recognizing the costs related to such transaction.

Termination of Agreements with Grubb & Ellis Healthcare REIT II

On November 7, 2011, Grubb & Ellis Healthcare REIT II (“Healthcare REIT II”), an independent entity with an independent board of directors sponsored by us, terminated its advisory and dealer-manager relationships (collectively the “REIT agreements’) with various subsidiaries of Grubb & Ellis Company. The termination is effective immediately subject to a 60-day transition period. The termination of the REIT agreements could have a material adverse effect on our business, future results of operations and financial condition.

We have received revenues totaling approximately $13.2 million from Healthcare REIT II for the nine months ended September 30, 2011. Based on the projected levels of capital we estimate will be raised for Healthcare REIT during the 60-day transition period and the pipeline of property acquisitions expected to close, we currently estimate that we will be entitled to receive significant acquisition fees during the fourth quarter of 2011 and first quarter of 2012. In addition, we expect to receive property and asset management fees through the end of the transition period. The amount of capital to be raised and the timing and amount of property acquisitions that close are not within our control and uncertain, and as such the timing of cash flows may materially differ from these estimates.

As of September 30, 2011, we have incurred organizational and offering expenses of approximately $2.8 million in excess of 1.0% of the gross proceeds of the Healthcare REIT II offering which are included in “Accounts Receivable from Related Parties — net” on our consolidated balance sheet. While we currently expect to recover all unpaid reimbursements of expenses from Healthcare REIT II, such recovery may be subject to certain limitations and therefore the timing and ultimate collection of all such amounts are uncertain.

Should Healthcare REIT II fail to pay amounts that become due to us under the REIT Agreements, it could have a material adverse affect on our near term cash flows, results of operations and financial condition and create significant risk of our ability to continue as a going concern.

In addition, simultaneously with the termination of the REIT agreements, Jeffrey T. Hanson, our Executive Vice President, and the President and Chief Investment Officer of Grubb & Ellis Realty Investors, resigned effective November 7, 2011, from all of his executive positions with us, as well as from all officer and director positions he holds with any of our subsidiaries.

Basis of Presentation

Our accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the date of these financial statements.

On March 21, 2011, the Company announced that it had engaged an external advisor to explore strategic alternatives, including the potential sale or merger of the Company. The board of directors also determined, as permitted, not to declare the March 31, June 30 or September 30, 2011 quarterly dividends to holders of its 12% Cumulative Participating Perpetual Convertible Preferred Stock.

On April 15, 2011, we entered into an $18.0 million credit facility (as amended on October 16, 2011) with ColFin GNE Loan Funding, LLC, an affiliate of Colony Capital LLC (“Colony”), as further described in Commitments, Contingencies and Other Contractual Obligations below. The Colony credit facility, which addressed the Company’s liquidity needs resulting from operating losses relating to the seasonal nature of the real estate services businesses, investments made in growth initiatives and increased legal expenses related to its Daymark subsidiary, matures on March 1, 2012. On October 16, 2011, we amended the Credit Facility, to increase the size from $18.0 million to $28.0 million, which provided incremental capital to us to allow us to complete a strategic process.

We may seek additional financing prior to the completion of our review of strategic alternatives. It is anticipated that any strategic alternative would include provisions to extend, retire or refinance the Colony credit facility at or prior to maturity. If the Company is unable to extend, retire or refinance the Colony credit facility prior to maturity, it could create substantial doubt about the Company’s ability to continue as a going concern for the twelve month period following the date of these financial statements. We believe that upon completion of our strategic alternative process we will have sufficient liquidity to operate in the normal course over the next twelve month period.

The consolidated financial statements include our accounts and those of our wholly owned and majority-owned controlled subsidiaries, variable interest entities (“VIEs”) in which we are the primary beneficiary, and partnerships/limited liability companies (“LLCs”) in which we are the managing member or general partner and the other partners/members lack substantive rights. All significant intercompany accounts and transactions are eliminated in consolidation.

Pursuant to the requirements of Accounting Standards Codification (“ASC”) Topic 810, Consolidation, (“Consolidation Topic”), we consolidate entities that are VIEs when we are deemed to be the primary beneficiary of the VIE. We are deemed to be the primary beneficiary of the VIE if we have a significant variable interest in the VIE that provides us with a controlling financial interest in the VIE. Our variable interest provides us with a controlling financial interest if we have both (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. There is subjectivity around the determination of power and which activities of the VIE most significantly impact the entity’s economic performance. As reconsideration events occur, we will reconsider our determination of whether an entity is a VIE and who the primary beneficiary is to determine if there is a change in the original determinations and will report such changes on a quarterly basis. In addition, we will continuously evaluate our VIE’s primary beneficiary as facts and circumstances change to determine if such changes warrant a change in an enterprise’s status as primary beneficiary of the VIEs. For entities in which (i) we are not deemed to be the primary beneficiary, (ii) our ownership is 50.0% or less and (iii) we have the ability to exercise significant influence, we use the equity method of accounting (i.e. at cost, increased or decreased by our share of earnings or losses, plus contributions less distributions). We also use the equity method of accounting for jointly controlled tenant-in-common interests.

Interim Unaudited Financial Data

Our accompanying consolidated financial statements have been prepared by us in accordance with generally accepted accounting principles in the United States (“GAAP”) in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying consolidated financial statements reflect all adjustments, which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.

In preparing our accompanying consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date.

We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2010 Annual Report on Form 10-K, as filed with the SEC on March 31, 2011.

Use of Estimates

The financial statements have been prepared in conformity with GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including disclosure of contingent assets and liabilities) as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to prior year and prior period amounts in order to conform to the current period presentation. These reclassifications have no effect on reported net loss.

Restricted Cash

Restricted cash is comprised primarily of cash reserve accounts held for the benefit of various insurance providers, lessors and lenders. As of September 30, 2011 and December 31, 2010, the restricted cash balance was $3.5 million and $3.8 million, respectively.

Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures, (“Fair Value Measurements and Disclosures Topic”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Fair Value Measurements and Disclosures Topic applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

The Fair Value Measurements and Disclosures Topic emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Fair Value Measurements and Disclosures Topic establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs are the highest priority and are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included in Level 1 that are observable directly or through corroboration with observable market data. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs, due to little or no market activity for the asset or liability, such as internally-developed valuation models. If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or 3 even though there may be some significant inputs that are readily observable. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

We generally use a discounted cash flow model to estimate the fair value of our consolidated real estate investments, unless better market comparable data is available. Management uses its best estimate in determining the key assumptions, including the expected holding period, future occupancy levels, capitalization rates, discount rates, rental rates, lease-up periods and capital expenditure requirements. The estimated fair value is further adjusted for anticipated selling expenses. Generally, if a property is under contract, the contract price adjusted for selling expenses is used to estimate the fair value of the property.

The following table presents financial and nonfinancial assets and liabilities measured at fair value on either a recurring or nonrecurring basis for the nine months ended September 30, 2011 (including amounts classified in discontinued operations):

											Total
											Impairment
											Recoveries
											(Losses)
											Incurred
											During the
											Nine Months
	September 30,										Ended September 30,
(In thousands)	2011			Level 1		Level 2			Level 3		2011
Investments in marketable equity securities	$	815		$	815	$	—		$	—	$	—
Life insurance contracts	$	337		$	—	$	337		$	—	$	—
Contingent liability — TIC program exchange	$	—		$	—	$	—		$	—	$	9,024
Warrant derivative liability	$	(358	)	$	—	$	(358	)	$	—	$	—

The following table presents financial and nonfinancial assets measured at fair value on either a recurring or nonrecurring basis for the year ended December 31, 2010:

									Total
									Impairment
									Losses
									Incurred
									During the
									Year Ended
	December 31,								December 31,
(In thousands)	2010		Level 1		Level 2		Level 3		2010
Investments in marketable equity securities	$	1,948	$	1,948	$	—	$	—	$	—
Assets under management	$	901	$	901	$	—	$	—	$	—
Property held for sale	$	45,572	$	—	$	—	$	45,572	$	—
Investments in unconsolidated entities	$	5,178	$	—	$	—	$	5,178	$	(646	)
Life insurance contracts	$	1,062	$	—	$	1,062	$	—	$	—

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, (“Financial Instruments Topic”) requires disclosure of fair value of financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. The Financial Instruments Topic defines fair value as the quoted market prices for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. The fair value estimates are made at the end of the reporting period based on unobservable assumptions categorized in Level 3 of the hierarchy, including available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

The fair value of our mortgage notes, notes payable, senior notes, convertible notes and preferred stock is estimated using borrowing rates available to us for debt instruments with similar terms and maturities. The amounts recorded for accounts receivable, notes receivable, advances, accounts payable and accrued liabilities and capital lease obligations approximate fair value due to their short-term nature.

The following table presents the fair value and carrying value of our mortgage notes, notes payable, NNN senior notes, credit facility, convertible notes and preferred stock as of September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value
Mortgage notes — held for sale	$	—	$	—	$	59,624	$	70,000
Notes payable	$	4,421	$	5,645	$	747	$	884
NNN senior notes — held for sale	$	—	$	—	$	16,054	$	16,277
Credit facility(1)	$	18,881	$	18,511	$	—	$	—
Convertible notes(2)	$	23,783	$	30,369	$	28,832	$	30,133
Preferred stock(3)	$	27,643	$	98,892	$	91,828	$	90,080

(1)	Carrying value includes an unamortized debt discount of $0.4 million and accrued interest of $0.9 million as of September 30, 2011.
(2)	Carrying value includes an unamortized debt discount of $1.1 million and $1.4 million as of September 30, 2011 and December 31, 2010, respectively.
(3)	Carrying value includes cumulative unpaid dividends of $8.8 million as of September 30, 2011.

Litigation

We routinely assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue and an analysis of historical experience. Therefore, we have recorded reserves related to certain legal matters for which we believe it is probable that a loss will be incurred and the range of such loss can be estimated. With respect to other matters, we have concluded that a loss is only reasonably possible or remote, or is not estimable and, therefore, no liability is recorded. Assessing the likely outcome of pending litigation, including the amount of potential loss, if any, is highly subjective. Our judgments regarding likelihood of loss and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting the outcome of jury trials, arbitration hearings, settlement discussions and related activity, and various other uncertainties. Due to the number of claims which are periodically asserted against us, and the magnitude of damages sought in those claims, actual losses in the future could significantly exceed our current estimates.