In February 2016, the FASB issued ASU 2016-02 which supersedes ASC 840 and creates a new topic, ASC 842. ASC 842 requires lessees to recognize a right-of-use asset and an operating lease liability on the balance sheet for all operating leases (with the exception of short-term leases, as defined in ASC 842) at the lease commencement date and recognize expenses on the income statement in a similar manner to the legacy guidance in ASC 840. The operating lease liability is measured as the present value of the unpaid lease payments and the right-of-use asset will be derived from the calculation of the operating lease liability.

We adopted the provisions of ASC 842 effective January 27, 2019, using the modified retrospective adoption method, which resulted in an adjustment to opening retained earnings of $98.6 million, net of $32.7 million in deferred taxes. We utilized the simplified transition option available in ASC 842, which allows entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. Related to the adoption of ASC 842, our policy elections were as follows:

In addition, ASC 842 eliminated the previous sale-leaseback and build-to-suit lease accounting guidance, which resulted in the derecognition of the following (in thousands):

(a)	Build-to-suit assets and related financing obligation liabilities that remained on the balance sheet after the end of the construction period.

For leases with terms of 12 months and greater, an asset and liability are initially recorded at an amount equal to the present value of the unpaid lease payments over the lease term. In determining the lease term for each lease, we include options to extend the lease when it is reasonably certain that we will exercise that option. We use the interest rate implicit in the lease, when known, or its estimated incremental borrowing rate, which is derived from information available at the lease commencement date including prevailing financial market conditions, in determining the present value of the unpaid lease payments.

We assess whether a contract contains a lease on its execution date. If the contract contains a lease, lease classification is assessed upon its commencement date under ASC 842. For leases that are determined to qualify for treatment as operating leases, rent expense is recognized on a straight-line basis over the lease term. Leases that are determined to qualify for treatment as finance leases recognize interest expense as determined using the effective interest method with corresponding amortization of the right-of-use assets.

We enter into leases primarily for real estate assets to support our operations in the normal course of business. As of January 25, 2020, our material operating leases consist of our corporate headquarters, distribution centers and the majority of our store properties. We also have two real estate leases for store properties that qualify for treatment as finance leases. Our leases generally have terms of 5 to 20 years, with renewal options that generally range from 5 to 20 years in the aggregate and are subject to escalating rent increases. Our leases may include variable charges at the discretion of the lessor. Certain of our leases include rent escalations based on inflation indexes and/or contingent rental provisions that include a fixed base rent plus an additional percentage of the respective stores’ sales in excess of stipulated amounts. Operating lease liabilities are calculated using the prevailing index or rate at the commencement of the lease. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease cost were as follows (in thousands):


	Fiscal Year Ended
	January 25, 2020

Operating lease cost^(a)	$	142,508
Variable lease cost		23,086
Finance lease cost:
Amortization of right-of-use assets		298
Interest on lease liabilities		129
Total lease cost^(b)	$	166,021

(a)	Net of an immaterial amount of sublease income.

(b)	Short-term lease cost for the fiscal year ended January 25, 2020 was immaterial.

The table below presents additional information related to our leases as of January 25, 2020.


Weighted average remaining lease term
Operating leases	12.5	years
Finance leases	4.6	years
Weighted average discount rate
Operating leases	6.23	%
Finance leases	8.28	%

Supplemental disclosures of cash flow information related to leases were as follows (in thousands):


	Fiscal Year Ended
	January 25, 2020

Cash paid for operating lease liabilities	$	126,511
Right-of-use assets obtained in exchange for operating lease liabilities	$	310,818
Cash paid for finance lease liabilities	$	294

Maturities of lease liabilities were as follows as of January 25, 2020 (in thousands):



	Operating Leases		Finance Leases		Total

2021	$	143,885	$	424	$	144,309
2022		142,382		424		142,806
2023		143,591		390		143,981
2024		143,485		239		143,724
2025		143,862		243		144,105
Thereafter		1,121,991		162		1,122,153
Total lease payments		1,839,196		1,882		1,841,078
Amount representing interest		(578,444)		(349)		(578,793)
Present value of lease liabilities		1,260,752		1,533		1,262,285
Less current obligations		(65,188)		(314)		(65,502)
Long-term lease obligations	$	1,195,564	$	1,219	$	1,196,783

As of January 25, 2020, operating lease payments excluded approximately $173.0 million of legally binding minimum lease payments for leases signed but not yet commenced.

Litigation

We are subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.