(11) Asset Impairment and Estimated Lease Termination and Other Closing Costs

In accordance with FASB Accounting Standards Codification 360 for Property, Plant, and Equipment, the Company evaluates restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying amount of the restaurant’s assets exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms, discount rate, anticipated sale prices and other factors. If these assumptions change in the future, the Company may be required to take additional impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates.

The Company maintains lease reserves on locations for which the Company is the primary obligor of a lease agreement but expects to incur losses after the Company ceases to use the location. During the three and six months ended July 2, 2017, the Company recorded lease reserves and corresponding lease termination charges on Company-owned closed restaurants and franchisee-operated locations, for which the Company was the primary obligor of the lease agreement.

Restaurant Optimization - During fiscal 2016, the Company recorded asset impairment charges associated with certain restaurants which were slow to respond to several initiatives to turnaround operating performance. As a result, the Company determined that the estimated fair value of the assets was less than the carrying amount and recognized impairment charges to reduce the related assets to their estimated fair value. As the Company continues to evaluate its restaurant portfolio, the Company anticipates addressing the ongoing operation of the locations impaired by way of lease restructuring, lease assignment or subsequent closure at the end of their natural lease term. During the six months ended July 2, 2017, the Company closed five restaurants as part of the Restaurant Optimization plan and, subsequent to July 2, 2017, the Company closed three additional restaurants as part of this plan. See Note 17 “Subsequent Events.”

On May 2, 2017, the Company announced that it planned to accelerate refranchising or closure of its remaining Company-owned restaurants, which triggered an evaluation of each of the restaurants that the Company plans to close significantly before the end of their previously estimated useful lives. As a result of this evaluation, the Company concluded that the carrying amounts of certain of its restaurants slated for closure were not recoverable. The following is a summary of impairment costs for the three and six months ended July 2, 2017 and July 3, 2016. These costs are included in asset impairment and estimated lease termination and other closing costs in the consolidated statements of operations.


	Three Months Ended				Six Months Ended
(dollars in thousands)	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Restaurant Optimization
Asset impairments, net	$	3,098	$	868	$	3,042	$	868
Lease termination charges(1)		353		—		1,535		—
Restaurant closure expenses		22		17		29		25
Software		—		171		—		171
Asset impairment, estimated lease termination and other closing costs	$	3,473	$	1,056	$	4,606	$	1,064

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Primarily related to Chicago-area refranchised restaurants, restaurants closed during the applicable time period and former Chicago field office. See Note 14 - Variable Interest Entities.