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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  ________  to ________
Commission File Number: 001-33805
SCULPTOR CAPITAL MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware   26-0354783
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
9 West 57th Street, New York, New York 10019
(Address of principal executive offices)
(212) 790-0000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Trading symbol(s) Name of each exchange on which registered
Class A Shares   SCU New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    Accelerated filer
   
Non-accelerated filer    Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 
As of November 5, 2020, there were 22,581,124 Class A Shares and 32,820,413 Class B Shares outstanding.
 




SCULPTOR CAPITAL MANAGEMENT, INC.
TABLE OF CONTENTS
 
    Page
PART I — FINANCIAL INFORMATION
 
Item 1.
5
 
 
5
 
 
6
 
 
7
 
 
9
 
 
11
 
Item 2.
39
 
Item 3.
76
 
Item 4.
77
 
PART II — OTHER INFORMATION  
 
Item 1.
79
 
Item 1A.
79
 
Item 2.
80
 
Item 3.
80
 
Item 4.
80
 
Item 5.
80
 
Item 6.
82
 
83

i


Defined Terms
2007 Offerings
Refers collectively to our IPO and the concurrent private offering of approximately 38.1 million Class A Shares to DIC Sahir Limited, a wholly owned indirect subsidiary of Dubai Holdings LLC
active executive managing directors
Executive managing directors who remain active in our business
Annual Report
Our annual report on Form 10-K for the year ended December 31, 2019, as amended, dated February 25, 2020 and filed with the SEC
Class A Shares
Our Class A Shares, representing Class A common stock of Sculptor Capital Management, Inc., which are publicly traded and listed on the NYSE
Class B Shares
Class B Shares of Sculptor Capital Management, Inc., which are not publicly traded, are currently held solely by our executive managing directors and have no economic rights but entitle the holders thereof to one vote per share together with the holders of our Class A Shares
CLOs
Collateralized loan obligations
the Company, Sculptor Capital, the firm, we, us, our
Refers, unless the context requires otherwise, to the Registrant and its consolidated subsidiaries, including the Sculptor Operating Group
Exchange Act
Securities Exchange Act of 1934, as amended
executive managing directors
The current executive managing directors of the Company, and, except where the context requires otherwise, also includes certain executive managing directors who are no longer active in our business
funds
The multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles for which we provide asset management services
GAAP
U.S. generally accepted accounting principles
Group A Units
Refers collectively to one Class A operating group unit in each of the Sculptor Operating Partnerships. Group A Units are limited partner interests held by our executive managing directors
Group A-1 Units
Refers collectively to one Class A-1 operating group unit in each of the Sculptor Operating Partnerships. Group A-1 Units are limited partner interests held by our executive managing directors
Group B Units
Refers collectively to one Class B operating group unit in each of the Sculptor Operating Partnerships. Group B Units are limited partner interests held by Sculptor Corp
Group D Units
Refers collectively to one Class D operating group unit in each of the Sculptor Operating Partnerships. Group D Units are limited partner interests held by our executive managing directors
Group E Units
Refers collectively to one Class E operating group unit in each of the Sculptor Operating Partnerships. Group E Units are limited partner interests held by our executive managing directors
1


Group P Units
Refers collectively to one Class P operating group unit in each of the Sculptor Operating Partnerships. Group P Units are limited partner interests held by our executive managing directors
Institutional Credit Strategies
Our asset management platform that invests in performing credits, including leveraged loans, high-yield bonds, private credit/bespoke financing and investment grade credit via CLOs, aircraft securitizations, collateralized bond obligations, and other customized solutions
IPO
Our initial public offering of 3.6 million Class A Shares that occurred in November 2007
NYSE
New York Stock Exchange
Partner Equity Units
Refers collectively to the Group A Units, Group E Units and Group P Units
Preferred Units One Class A cumulative preferred unit in each of the Sculptor Operating Partnerships collectively represents one “Preferred Unit.” Certain of our executive managing directors collectively own 100% of the Preferred Units. Preferred Units issued in 2016 and 2017 are, collectively, referred to as “2016 Preferred Units.” Preferred Units issued in 2019 are referred to as “2019 Preferred Units.”
PSUs
Class A performance-based RSUs
Recapitalization
Refers to the recapitalization of our business that occurred in February 2019. As part of the Recapitalization, a portion of the interests held by our active and former executive managing directors were reallocated to existing members of senior management. In addition, we restructured the previously outstanding senior debt and Preferred Units
Registrant
Sculptor Capital Management, Inc., a Delaware corporation
RSUs
Class A restricted share units
Sculptor Corp
Sculptor Capital Holding Corporation, a Delaware corporation
Sculptor Operating Group
Refers collectively to the Sculptor Operating Partnerships and their consolidated subsidiaries
Sculptor Operating Group Units
Refers collectively to Sculptor Operating Group A, B, D, E, and P Units
Sculptor Operating Partnerships
Refers collectively to Sculptor Capital LP, Sculptor Capital Advisors LP and Sculptor Capital Advisors II LP
SEC
U.S. Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
Special Investments
Investments that we, as investment manager, believe lack a readily ascertainable market value, are illiquid or should be held until the resolution of a special event or circumstance

2


Available Information
We file annual, quarterly and current reports, proxy statements and other information required by the Exchange Act with the SEC. We make available free of charge on our website (www.sculptor.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those filings as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. We also use our website to distribute company information, and such information may be deemed material. Accordingly, investors should monitor our website, in addition to our press releases, SEC filings and public conference calls and webcast. The contents of our website are not, however, a part of this report.
Also posted on our website in the “Investor Relations—Corporate Governance” section are charters for our Audit Committee; Compensation Committee; Nominating, Corporate Governance and Conflicts Committee and Corporate Responsibility and Compliance Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics governing our directors, officers and employees. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of our SEC filings or corporate governance materials are available without charge upon written request to Sculptor Capital Management, Inc., 9 West 57th Street, New York, New York 10019, Attention: Office of the Secretary. Any materials we file with the SEC are also publicly available through the SEC’s website (www.sec.gov).
No statements herein, available on our website or in any of the materials we file with the SEC constitute, or should be viewed as constituting, an offer of any fund.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that reflect our current views with respect to, among other things, future events, our operations and our financial performance. We generally identify forward-looking statements by terminology such as “outlook,” “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “seek,” “approximately,” “predict,” “intend,” “plan,” “estimate,” “anticipate,” “opportunity,” “comfortable,” “assume,” “remain,” “maintain,” “sustain,” “achieve,” “see,” “think,” “position” or the negative version of those words or other comparable words.
Any forward-looking statements contained herein are based upon historical information and on our current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.
We caution that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions, including the impact of public health crises, such as the ongoing COVID-19 pandemic; whether we are able to satisfy the conditions to closing under our new senior secured credit facility; U.S. and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; the outcome of third-party litigation involving us; the consequences of the Foreign Corrupt Practices Act settlements with the SEC and the U.S. Department of Justice (the “DOJ”) and any claims arising therefrom; whether the Company realizes all or any of the anticipated benefits from the Recapitalization and other related transactions; whether the Recapitalization and other related transactions result in any increased or unforeseen costs, indemnification obligations or have an impact on our ability to retain or compete for professional talent or investor capital; conditions impacting the alternative asset management industry; our ability to retain existing investor capital; our ability to successfully compete for fund investors, assets, professional talent and investment opportunities; our ability to retain our active executive managing directors, managing directors and other investment professionals; our successful formulation and execution of our business and growth strategies; our ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to our business; the anticipated benefits of changing the Registrant’s tax classification from a partnership to a corporation and subsequently converting from a limited liability company to a corporation; and assumptions relating to our operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.
If one or more of these or other risks or uncertainties materialize, or if our assumptions or estimates prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our
3




filings with the SEC, including but not limited to our Annual Report and Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.
There may be additional risks, uncertainties and factors that we do not currently view as material or that are not known. The forward-looking statements contained in this report are made only as of the date of this report. We do not undertake to update any forward-looking statement because of new information, future developments or otherwise.
4

SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS — UNAUDITED
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

  September 30, 2020 December 31, 2019
  (dollars in thousands)
Assets    
Cash and cash equivalents $ 290,297  $ 240,938 
Restricted cash 3,578  4,501 
Investments (includes assets measured at fair value of $340,814 and $329,435, including assets sold under agreements to repurchase of $101,843 and $98,085 as of September 30, 2020 and December 31, 2019, respectively)
436,095  411,426 
Income and fees receivable 37,708  215,395 
Due from related parties 11,523  15,355 
Deferred income tax assets 333,999  310,557 
Operating lease assets 107,585  115,810 
Other assets, net 75,003  82,608 
Assets of consolidated funds:  
Other assets of consolidated funds 737  649 
Total Assets $ 1,296,525  $ 1,397,239 
Liabilities and Shareholders’ Equity  
Liabilities    
Compensation payable $ 67,506  $ 187,180 
Unearned incentive income 66,892  60,798 
Due to related parties 194,975  211,915 
Operating lease liabilities 118,091  128,043 
Debt obligations 258,795  286,728 
Securities sold under agreements to repurchase 101,892  97,508 
Other liabilities 176,365  59,217 
Liabilities of consolidated funds:  
Other liabilities of consolidated funds 443  389 
Total Liabilities 984,959  1,031,778 
Commitments and Contingencies (Note 18)
Redeemable Noncontrolling Interests (Note 4) 155,598  150,000 
Shareholders’ Equity    
Class A Shares, par value $0.01 per share, 100,000,000 and 100,000,000 shares authorized, 22,557,205 and 21,284,945 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
226  213 
Class B Shares, par value $0.01 per share, 75,000,000 and 75,000,000 shares authorized, 32,820,413 and 29,208,952 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
328  292 
Additional paid-in capital 150,831  117,936 
Accumulated deficit (396,077) (343,759)
Shareholders’ deficit attributable to Class A Shareholders (244,692) (225,318)
Shareholders’ equity attributable to noncontrolling interests 400,660  440,779 
Total Shareholders’ Equity 155,968  215,461 
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity $ 1,296,525  $ 1,397,239 
See notes to consolidated financial statements.
5


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED
  Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
  (dollars in thousands)
Revenues        
Management fees $ 68,053  $ 62,956  $ 195,389  $ 187,979 
Incentive income 41,525  30,423  89,085  118,378 
Other revenues 2,316  3,646  7,693  12,458 
Income of consolidated funds 58  1,820  90  6,732 
Total Revenues 111,952  98,845  292,257  325,547 

Expenses        
Compensation and benefits 65,030  78,343  197,739  244,767 
Interest expense 4,488  6,323  14,944  19,054 
General, administrative and other 26,465  48,272  203,786  114,487 
Expenses of consolidated funds 34  507  53  646 
Total Expenses 96,017  133,445  416,522  378,954 

Other Income (Loss)        
Changes in tax receivable agreement liability —  —  278  5,362 
Net losses on early retirement of debt —  (218) (693) (6,271)
Net gains (losses) on investments 8,157  (2,169) 3,266  3,668 
Net (losses) gains of consolidated funds —  (460) —  3,768 
Total Other Income (Loss) 8,157  (2,847) 2,851  6,527 

Income (Loss) Before Income Taxes 24,092  (37,447) (121,414) (46,880)
Income taxes 9,397  (1,446) (17,971) 12,074 
Consolidated and Comprehensive Net Income (Loss) 14,695  (36,001) (103,443) (58,954)
Less: Net (income) loss attributable to noncontrolling interests (4,393) 11,435  63,552  26,653 
Less: Net income attributable to redeemable noncontrolling interests —  (574) —  (8,745)
Net Income (Loss) Attributable to Sculptor Capital Management, Inc. 10,302  (25,140) (39,891) (41,046)
Change in redemption value of Preferred Units (2,285) —  (5,598) 44,364 
Net Income (Loss) Attributable to Class A Shareholders $ 8,017  $ (25,140) $ (45,489) $ 3,318 
Earnings (Loss) per Class A Share        
Earnings (Loss) per Class A Share - basic $ 0.35  $ (1.20) $ (2.02) $ 0.16 
Earnings (Loss) per Class A Share - diluted $ 0.25  $ (1.20) $ (2.71) $ 0.12 
Weighted-average Class A Shares outstanding - basic 22,729,285  20,907,021  22,542,047  20,703,211 
Weighted-average Class A Shares outstanding - diluted 49,737,060  20,907,021  38,559,963  28,165,978 

See notes to consolidated financial statements.
6


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED

Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
(dollars in thousands)
Number of Class A Shares
Beginning balance
22,311,432  20,631,750  21,284,945  19,905,126 
Equity-based compensation
245,773  117,556  1,272,260  844,180 
Ending Balance
22,557,205  20,749,306  22,557,205  20,749,306 
Number of Class B Shares
Beginning balance
32,820,414  29,208,952  29,208,952  29,458,948 
Equity-based compensation
(1) —  3,611,461  (249,996)
Ending Balance
32,820,413  29,208,952  32,820,413  29,208,952 
Class A Shares Par Value
Beginning balance
$ 223  $ 206  $ 213  $ — 
Equity-based compensation
13 
Reclassification upon corporate conversion
—  —  —  205 
Ending Balance
$ 226  $ 207  $ 226  $ 207 
Class B Shares Par Value
Beginning balance
$ 328  $ 292  $ 292  $ — 
Equity-based compensation
—  —  36  — 
Reclassification upon corporate conversion
—  —  —  292 
Ending Balance
$ 328  $ 292  $ 328  $ 292 
Additional Paid-in Capital
Beginning balance
$ 142,288  $ 70,875  $ 117,936  $ 3,135,841 
Dividend equivalents on Class A restricted share units (61) 483  814  961 
Equity-based compensation, net of taxes 10,889  29,058  37,679  69,376 
Reclassification upon corporate conversion —  —  —  (3,235,728)
Impact of changes in Sculptor Operating Group ownership —  —  —  (124)
Reallocation of equity and income tax effects of Recapitalization —  —  —  35,408 
Amendment to tax receivable agreement —  —  —  50,318 
Change in redemption value of Preferred Units (2,285) —  (5,598) 44,364 
Ending Balance
$ 150,831  $ 100,416  $ 150,831  $ 100,416 
7


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY — UNAUDITED — (continued)

Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
(dollars in thousands)
Accumulated Deficit
Beginning balance
$ (406,440) $ (358,204) $ (343,759) $ (3,564,727)
Cash dividends declared on Class A Shares —  (6,631) (11,613) (18,955)
Dividend equivalents on Class A restricted share units 61  (483) (814) (961)
Reclassification upon corporate conversion —  —  —  3,235,231 
Comprehensive net income (loss), excluding amounts attributable to redeemable noncontrolling interests 10,302  (25,140) (39,891) (41,046)
Ending Balance
$ (396,077) $ (390,458) $ (396,077) $ (390,458)
Shareholders’ Deficit Attributable to Class A Shareholders
$ (244,692) $ (289,543) $ (244,692) $ (289,543)
Shareholders’ Equity Attributable to Noncontrolling Interests
Beginning balance
$ 386,686  $ 453,892  $ 440,779  $ 419,431 
Capital contributions 3,535  958  7,084  1,576 
Capital distributions (391) (264) (3,639) (891)
Equity-based compensation, net of taxes 6,437  2,769  19,988  34,377 
Impact of changes in Sculptor Operating Group ownership —  —  —  124 
Reallocation of equity and income tax effects of Recapitalization —  —  —  (39,086)
Change in redemption value of Preferred Units —  —  —  57,042 
Comprehensive net income (loss), excluding amounts attributable to redeemable noncontrolling interests 4,393  (11,435) (63,552) (26,653)
Ending Balance
$ 400,660  $ 445,920  $ 400,660  $ 445,920 
Total Shareholders’ Equity $ 155,968  $ 156,377  $ 155,968  $ 156,377 
Cash dividends paid on Class A Shares $ —  $ 0.32  $ 0.53  $ 0.92 

See notes to consolidated financial statements.
8


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED




  Nine Months Ended September 30,
  2020 2019
  (dollars in thousands)
Cash Flows from Operating Activities    
Consolidated net loss $ (103,443) $ (58,954)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:    
Amortization of equity-based compensation 60,342  106,270 
Depreciation, amortization and net gains and losses on fixed assets 5,379  6,941 
Net losses on early retirement of debt 693  6,271 
Deferred income taxes (23,422) 6,525 
Non-cash lease expense 16,026  15,911 
Net gains on investments, net of dividends (617) (823)
Operating cash flows due to changes in:    
Income and fees receivable 177,687  48,031 
Due from related parties 3,833  (961)
Other assets, net 6,861  8,756 
Compensation payable (121,190) (43,143)
Unearned incentive income 6,095  1,994 
Due to related parties (16,940) (4,140)
Operating lease liabilities (17,160) (13,485)
Other liabilities 117,996  798 
Consolidated funds related items:    
Net gains of consolidated funds —  (3,768)
Purchases of investments —  (128,917)
Proceeds from sale of investments —  263,505 
Other assets of consolidated funds (90) (31,815)
Other liabilities of consolidated funds 54  8,038 
Net Cash Provided by Operating Activities 112,104  187,034 
Cash Flows from Investing Activities    
Purchases of fixed assets (1,781) (1,587)
Purchases of United States government obligations (322,439) (260,445)
Maturities and sales of United States government obligations 316,879  181,278 
Investments in funds (18,501) (84,906)
Return of investments in funds 5,790  56,947 
Net Cash Used in Investing Activities (20,052) (108,713)
9


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED — (continued)

  Nine Months Ended September 30,
  2020 2019
  (dollars in thousands)
Cash Flows from Financing Activities    
Contributions from noncontrolling and redeemable noncontrolling interests 7,084  5,323 
Distributions to noncontrolling and redeemable noncontrolling interests (3,639) (103,983)
Dividends on Class A Shares (11,613) (18,955)
Proceeds from debt obligations, net of issuance costs 3,276  — 
Repayment of debt obligations, including prepayment costs (36,668) (187,790)
Proceeds from securities sold under agreements to repurchase, net of issuance costs —  36,134 
Other, net (2,056) (1,166)
Net Cash Used in Financing Activities (43,616) (270,437)
Net change in cash and cash equivalents and restricted cash 48,436  (192,116)
Cash and cash equivalents and restricted cash, beginning of period 245,439  323,884 
Cash and Cash Equivalents and Restricted Cash, End of Period $ 293,875  $ 131,768 
Supplemental Disclosure of Cash Flow Information    
Cash paid during the period:    
Interest $ 10,794  $ 9,810 
Income taxes $ 5,614  $ 4,199 
Non-cash transactions:    
Increase in paid-in capital as a result of tax receivable agreement amendment $ —  $ 50,318 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents $ 290,297  $ 126,814 
Restricted cash 3,578  4,954 
Total Cash and Cash Equivalents and Restricted Cash $ 293,875  $ 131,768 

See notes to consolidated financial statements.
10


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020


1. OVERVIEW
Sculptor Capital Management, Inc. (the “Registrant”), a Delaware corporation, together with its consolidated subsidiaries (collectively, the “Company” or “Sculptor Capital”), is a global alternative asset management firm providing investment products in a range of areas, including multi-strategy, credit and real estate. With offices in New York, London, Hong Kong and Shanghai, the Company serves global clients through commingled funds, separate accounts and specialized products (collectively, the “funds”). Sculptor Capital’s distinct investment process seeks to generate attractive and consistent risk-adjusted returns across market cycles through a combination of bottom-up fundamental analysis, a high degree of flexibility, a collaborative team and integrated risk management. The Company’s capabilities span all major geographies, in strategies including fundamental equities, corporate credit, real estate debt and equity, merger arbitrage, structured credit and private investments.
The Company manages multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles. Through Institutional Credit Strategies, the Company’s asset management platform that invests in performing credits, the Company manages collateralized loan obligations (“CLOs”), aircraft securitizations, collateralized bond obligations (“CBOs”), commingled products and other customized solutions for clients.
The Company’s primary sources of revenues are management fees, which are based on the amount of the Company’s assets under management, and incentive income, which is based on the investment performance of its funds. Accordingly, for any given period, the Company’s revenues will be driven by the combination of assets under management and the investment performance of the funds.
The Company has one operating and reportable segment and generates substantially all of its revenues in the United States. The Company conducts its operations through Sculptor Capital LP, Sculptor Capital Advisors LP and Sculptor Capital Advisors II LP (collectively, the “Sculptor Operating Partnerships” and collectively with their consolidated subsidiaries, the “Sculptor Operating Group”). The Registrant holds its interests in the Sculptor Operating Group indirectly through Sculptor Capital Holding Corporation (“Sculptor Corp”), a wholly owned subsidiary of the Registrant.
References to the Company’s “executive managing directors” include the current executive managing directors of the Company, and, except where the context requires otherwise, also include certain executive managing directors who are no longer active in the Company’s business. References to the Company’s “active executive managing directors” refer to executive managing directors who remain active in the Company’s business.
COVID-19 Pandemic
In the first nine months of 2020, a novel strain of coronavirus (“COVID-19”) spread across the world resulting in a wide-spread market and economic downturn. The Company’s largest fund, the Sculptor Master Fund, has generated performance-related appreciation through September 30, 2020. However, in the first quarter of 2020, the fund experienced significant performance-related depreciation driven by the market and economic impacts of the ongoing COVID-19 pandemic, which had a negative impact on the Company’s incentive income during the first quarter of 2020. In the second and third quarters of 2020, the Company generated strong returns that offset the first quarter losses. To the extent that the Company experiences significant performance-related depreciation in the fourth quarter of 2020, whether due to the COVID-19 pandemic or other factors, it would have a material impact on the Company’s ability to earn incentive income in 2020, as well as in future years until the losses are recovered for continuing fund investors.
In addition, in the first quarter of 2020, the Company also experienced significant unrealized losses on its risk retention investments held in certain of the CLOs that it manages as a result of the market and economic impacts of the ongoing COVID-19 pandemic. As of September 30, 2020, those unrealized losses had been recovered due to improved market conditions. The Company is required to hold these investments for the entire duration of the CLOs. To the extent that cash flows in the
11


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

CLOs deteriorate, whether due to the COVID-19 pandemic or other factors, the Company could experience declining interest income and impairments on these investments.
A portion of the management fees the Company earns from its CLOs is subordinated to other obligations of the CLOs, including principal and interest on the notes issued by the CLOs. When certain overcollateralization tests are triggered, cash flows received on the underlying collateral in the CLOs that would have otherwise been distributed as subordinated management fees to the Company are redirected to pay principal and interest on the more senior obligations of the CLOs. In the second quarter of 2020, driven by the market and economic impacts of the ongoing COVID-19 pandemic and resulting ratings downgrades and defaults on certain of the collateral held by CLOs, certain impacted CLOs failed to satisfy one or more overcollateralization tests, and therefore, the Company has stopped recognizing management fees for these CLOs until the collateral tests are remedied and such fees are paid. The Company recovered a portion of those management fees in the third quarter, and as of September 30, 2020, the Company had approximately $8.3 million of subordinated management fees on a U.S. GAAP basis for which collection and revenue recognition has been deferred until certain overcollateralization tests have been cured. In the event the persistent market conditions do not sufficiently recover over the life cycle of these CLOs, the Company’s management fees from its securitization vehicles will continue to deteriorate. The Company will continue to evaluate its ability to collect these and any future fees; however, to the extent the overcollateralization tests in the CLOs have not been cured, the amount of fees for which collection and revenue recognition has been deferred would continue to increase, which would negatively impact the Company’s liquidity and the amounts it recognizes as revenue in future periods.
The Company has also evaluated its long-lived assets including operating lease assets and goodwill and has not identified any impairments to these assets as of September 30, 2020.
Company Structure
The Registrant is a holding company that, through Sculptor Corp, holds equity ownership interests in the Sculptor Operating Group. The Registrant had issued and outstanding the following share classes:
Class A Shares—Class A Shares are publicly traded and entitle the holders thereof to one vote per share on matters submitted to a vote of shareholders. The holders of Class A Shares are entitled to any distributions declared on the Class A Shares by the Registrant’s Board of Directors (the “Board”).
Class B Shares—Class B Shares are held by executive managing directors, as further discussed below. These shares are not publicly traded but rather entitle the executive managing directors to one vote per share on matters submitted to a vote of shareholders. These shares do not participate in the earnings of the Registrant, as the executive managing directors participate in the related economics of the Sculptor Operating Group through their direct ownership in the Sculptor Operating Group, subject to the Distribution Holiday discussed below.
The Company conducts its operations through the Sculptor Operating Group. The following is a list of the outstanding units of the Sculptor Operating Partnerships as of September 30, 2020:
Group A Units—Group A Units are limited partner interests issued to certain executive managing directors. Beginning on the final day of the Distribution Holiday (as defined in Note 3), each executive managing director may exchange his or her vested and booked-up (as defined below) Group A Units for an equal number of Class A Shares (or the cash equivalent thereof) over a period of two years in three equal installments commencing upon the final day of the Distribution Holiday and on each of the first and second anniversary thereof (or, for units that become vested and booked-up Group A Units after the final day of the Distribution Holiday, from the later of the date on which they would have been exchangeable in accordance with the foregoing and the date on which they become vested and booked-up Group A Units) (and thereafter such units will remain exchangeable), in each case, subject to certain restrictions. A “book-up” is achieved when sufficient appreciation has occurred to meet a prescribed capital account book-up target under the terms of the Sculptor Operating Partnership limited partnership agreements.
12


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

Holders of Group A Units do not receive distributions during the Distribution Holiday. Group A Unit grants are accounted for as equity-based compensation. See Note 14 in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2019, dated February 25, 2020 (“Annual Report”) for additional information. The Company completed a recapitalization in February 2019 (“Recapitalization”). See Note 3 for additional details. In connection with the Recapitalization each Group A Unit outstanding on the Recapitalization date was recapitalized into 0.65 Group A Units and 0.35 Group A-1 Units.
Group A-1 Units—Group A-1 Units are limited partner interests into which 0.35 of each Group A Unit was recapitalized in connection with the reallocation that was effectuated by the Recapitalization. The Group A-1 Units will be canceled at such time and to the extent that the Group E Units granted in connection with the Recapitalization vest and achieve a book-up. Group A-1 Units are not eligible to receive distributions at any time and do not participate in the net income (loss) of the Sculptor Operating Group. However, the holders of Group A-1 Units shall participate in any sale, change of control or other liquidity event that takes place prior to cancellation of the Group A-1 Units. In the Recapitalization, the holders of the 2016 Preferred Units (as defined below) forfeited an additional 749,813 Group A Units, which were recapitalized into Group A-1 Units.
Group B Units—Sculptor Corp holds a general partner interest and Group B Units in each Sculptor Operating Partnership. Sculptor Corp owns all of the Group B Units, which represent equity interest in the Sculptor Operating Partnerships. Except during the Distribution Holiday as described above, the Group B Units are economically identical to the Group A Units held by executive managing directors but are not exchangeable for Class A Shares and are not subject to vesting, forfeiture or minimum retained ownership requirements.
Group E Units—Group E Units are limited partner interests issued to certain executive managing directors that are only entitled to future profits and gains. Each Group E Unit converts into a Group A Unit and becomes exchangeable for one Class A Share (or the cash equivalent thereof) to the extent there has been a sufficient amount of appreciation for a Group E Unit to achieve a book-up target and, subject to other conditions contained in the limited partnership agreements of the Sculptor Operating Partnerships, the Distribution Holiday has ended (or an earlier exchange date is established by the Exchange Committee). The Group E Units are entitled to share in residual assets upon liquidation, dissolution or winding up and become eligible to participate in any tag along right, in a change of control transaction or other liquidity event only to the extent of their relative positive capital accounts (if any). In connection with the Recapitalization, all outstanding Group D Units, which were non-equity profits interests, converted into Group E Units on a one-for-one basis. Holders of Group E Units do not receive distributions during the Distribution Holiday. See Note 3 for additional information. Group E Unit grants are accounted for as equity-based compensation. See Note 14 in the Annual Report for additional information.
Group P Units—Group P Units are limited partner interests issued to certain executive managing directors that are only entitled to future profits and gains. Each Group P Unit becomes exchangeable for one Class A Share (or the cash equivalent thereof), in each case upon satisfaction of certain service and performance conditions at such time and, with respect to exchanges, to the extent there has been sufficient appreciation for a Group P Unit to achieve a book-up target and, subject to other conditions contained in the limited partnership agreements of the Sculptor Operating Partnerships, the Distribution Holiday has ended (or an earlier exchange date is established by the Exchange Committee). The Group P Units are entitled to share in residual assets upon liquidation, dissolution or winding up and become eligible to participate in any tag along right, in a change of control transaction or other liquidity event only to the extent that certain performance conditions are met and to the extent of their relative positive capital accounts (if any). The terms of the Group P Units may be varied for certain executive managing directors. Group P Unit grants are accounted for as equity-based compensation. See Note 14 in the Annual Report for additional information.
Preferred Units— The Preferred Units are non-voting preferred equity interests in the Sculptor Operating Partnerships. Preferred Units issued in 2016 and 2017 are collectively referred to as the “2016 Preferred Units.” The Preferred Units issued in 2019 are referred to as the “2019 Preferred Units.” See Note 10 for additional information.
13


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

Executive managing directors hold a number of Class B Shares equal to the number of Group A Units, vested Group E Units, Group A-1 Units (to the extent the corresponding Class B Shares have not been canceled in connection with the vesting of certain Group E Units issued in connection with the Recapitalization, as further discussed in Note 3) and Group P Units held. Upon the exchange of a Group A Unit or a Group P Unit for a Class A Share, the corresponding Class B Share is canceled and a Group B Unit is issued to Sculptor Corp.
The following table presents the number of shares and units (excluding Preferred Units) of the Registrant and the Sculptor Operating Partnerships, respectively, that were outstanding as of September 30, 2020:
  As of September 30, 2020
Sculptor Capital Management, Inc.
Class A Shares 22,557,205
Class B Shares 32,820,413
Sculptor Operating Partnerships
Group A Units 16,019,506
Group A-1 Units 9,779,446
Group B Units 22,557,205
Group E Units 12,975,820
Group P Units 3,385,000
In addition, the Company grants Class A restricted share units (“RSUs”) and performance-based RSUs (“PSUs”) to its employees and executive managing directors as a form of compensation. RSU and PSU grants are accounted for as equity-based compensation. See Note 14 in the Annual Report for additional information.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited, interim, consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”), and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s unaudited, interim, consolidated financial statements have been included and are of a normal and recurring nature. All significant intercompany transactions and balances have been eliminated in consolidation.
The results of operations presented for the interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. For example, incentive income for the majority of the Company’s multi-strategy assets under management is recognized in the fourth quarter each year, based on full year investment performance.
Recently Adopted Accounting Pronouncements
In March 2020, the FASB issued and the Company adopted an accounting standards update ASU 2020-04, Reference Rate Reform (“ASU 2020-04”), related to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates that are expected to be discontinued due to reference rate reform. ASU 2020-04 provides optional practical expedients and exceptions related to modifications of contracts, hedging relationships and other transactions affected by reference rate reform to ease the administrative burden in accounting for the future effects of the reform. There was no impact to the Company’s consolidated financial statements upon adoption of ASU 2020-04. The Company expects to apply the practical
14


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

expedients, where appropriate, as relevant contract modifications are made during the reference rate reform transition period through December 31, 2022.
No other changes to GAAP that went into effect in the nine months ended September 30, 2020, had a material effect on the Company’s consolidated financial statements.
Future Adoption of Accounting Pronouncements
No changes to GAAP that are not yet effective are expected to have a material effect on the Company’s consolidated financial statements.
3. RECAPITALIZATION
On February 7, 2019, the Company completed the Recapitalization, which included a series of transactions that involved the reallocation of certain ownership interests in the Sculptor Operating Partnerships to existing members of senior management, a “Distribution Holiday” on interests held by active and former executive managing directors, an amendment to the tax receivable agreement, a “Cash Sweep” to pay down the 2018 Term Loan (as defined in Note 8) and 2019 Preferred Units, and various other related transactions. In addition, (i) $200.0 million of the 2016 Preferred Units was restructured into the Debt Securities (as described in Note 8) and (ii) $200.0 million of the 2016 Preferred Units was restructured into the 2019 Preferred Units.
Reallocation of Equity
In connection with the Recapitalization, holders of Group A Units collectively reallocated 35% of their Group A Units to existing members of senior management and for potential grants to new hires. The reallocation was effected by (i) recapitalizing such Group A Units into Group A-1 Units and (ii) creating and making grants to existing members of senior management (and reserving for future grants to active managing directors and new hires) of Group E Units. An equivalent number of Group A-1 Units will be canceled at such time and to the extent that Group E Units vest and achieve a book-up. Upon vesting, holders of Group E Units received in connection with the reallocation of Group A Units will be entitled to vote a corresponding number of Class B Shares previously allocated to Group A-1 Units. Until such time as the relevant Group E Units become vested, the Class B Shares corresponding to the Group A-1 Units will be voted pro rata in accordance with the vote of the Class A Shares. In connection with the Recapitalization, the holders of the 2016 Preferred Units forfeited an additional 749,813 Group A Units (which were recapitalized into Group A-1 Units).
Distribution Holiday
The Sculptor Operating Partnerships initiated a distribution holiday (the “Distribution Holiday”) on the Group A Units, Group D Units, Group E Units and Group P Units and on certain RSUs that will terminate on the earlier of (x) 45 days after the last day of the first calendar quarter as of which the achievement of $600.0 million of Distribution Holiday Economic Income (as defined in the Sculptor Operating Partnerships’ limited partnership agreements) is realized and (y) April 1, 2026.
 During the Distribution Holiday, (i) the Sculptor Operating Partnerships shall only make distributions with respect to Group B Units, (ii) the performance thresholds of Group P Units and PSUs shall be adjusted to take into account performance and distributions during such period, and (iii) RSUs will continue to receive dividend equivalents in respect of dividends or distributions paid on the Class A Shares. For executive managing directors that have received Group E Units, distributions on RSUs, as well as distributions counted in determining whether performance conditions of Group P Units and PSUs are met, are limited to an aggregate amount not to exceed $4.00 per Group P Unit, PSU or RSU, as applicable, cumulatively during the Distribution Holiday. Following the termination of the Distribution Holiday, Group A Units and Group E Units (whether vested or unvested) shall receive distributions even if such units have not been booked-up.
The Distribution Holiday was effective retroactively to October 1, 2018. As a result, the Company recorded an adjustment to additional paid-in capital and noncontrolling interests to reallocate a portion of pre-Recapitalization earnings and
15


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

related income tax effects from noncontrolling interests to the Company’s additional paid-in capital. Such adjustment is recorded within Recapitalization adjustment in the consolidated statement of shareholders’ equity (deficit).
Cash Sweep
As described in the Company’s Annual Report, as part of the Recapitalization, the Company instituted a “Cash Sweep” with regards to required paydowns of the 2018 Term Loan and the 2019 Preferred Units. During the third quarter of 2020, the Company entered into a new financing facility. In the near future, the Company is expected to close on the new facility and will make a borrowing, the proceeds of which, together with cash on hand, will be used to redeem the 2019 Preferred Units and repay the 2018 Term Loan and the Debt Securities in full. Upon redeeming the 2019 Preferred Units and repayment of the 2018 Term Loan and Debt Securities, the Cash Sweep described in the Company’s Annual Report will no longer be in effect; however, the new financing facility will be subject to a new cash sweep. See Note 8 for additional details.
4. NONCONTROLLING INTERESTS
Noncontrolling interests represent ownership interests in the Company’s subsidiaries held by parties other than the Company, and primarily relate to the Group A Units held by executive managing directors.
Prior to the Recapitalization, the attribution of net income (loss) of each Sculptor Operating Partnership was based on the relative ownership percentages of the Group A Units (noncontrolling interests) and the Group B Units (indirectly held by the Registrant). In applying the substantive profit-sharing arrangements in the Sculptor Operating Partnerships’ limited partnership agreements to the Company’s consolidated financial statements, for periods subsequent to the Recapitalization and for the duration of the Distribution Holiday, the Company will allocate net income of each Sculptor Operating Partnership in any fiscal year solely to the Group B Units and any net loss on a pro rata basis based on the relative ownership percentages of the Group A Units and Group B Units. To the extent a Sculptor Operating Partnership incurs a net loss in an interim period, any net income recognized in a subsequent interim period in the same fiscal year is allocated on a pro rata basis to the extent of previously allocated net loss. Conversely, to the extent a Sculptor Operating Partnership recognizes net income in an interim period, any net loss incurred in a subsequent interim period in the same fiscal year is allocated solely to the Group B Units to the extent of previously allocated net income.
16


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

The table below sets forth the calculation of noncontrolling interests related to the Group A Units for each Sculptor Operating Partnership (rounding differences may occur). The blended participation percentages presented below take into account ownership changes throughout the periods presented. In addition, the blended participation percentages in 2019 take into account the difference in methodology described above for the period prior to the Recapitalization Date compared to the period following the Recapitalization Date. For example, Sculptor Capital Advisors LP had net income in the period prior to the Recapitalization Date, and as a result, allocates a portion of its net income for the nine months ended September 30, 2019 to the Group A Units.
Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
  (dollars in thousands)
Sculptor Capital LP
Net income (loss) $ 8,836  $ (23,983) $ (133,304) $ (74,801)
Blended participation percentage 46  % 43  % 42  % 44  %
Net Income (Loss) Attributable to Group A Units $ 4,049  $ (10,377) $ (55,356) $ (32,589)
Sculptor Capital Advisors LP
Net income (loss) $ 948  $ (10,838) $ (18,343) $ (2,864)
Blended participation percentage 47  % 12  % 42  % n/m
Net Income (Loss) Attributable to Group A Units $ 445  $ (1,248) $ (7,617) $ 5,447 
Sculptor Capital Advisors II LP
Net income (loss) $ 13,043  $ (4,562) $ 29,822  $ 12,041 
Blended participation percentage % % % %
Net Income (Loss) Attributable to Group A Units $   $   $   $  
Total Sculptor Operating Group
Net income (loss) $ 22,827  $ (39,383) $ (121,825) $ (65,624)
Blended participation percentage 20  % 30  % 52  % 41  %
Net Income (Loss) Attributable to Group A Units $ 4,494  $ (11,625) $ (62,973) $ (27,142)

The following table presents the components of the net income (loss) attributable to noncontrolling interests:
Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
(dollars in thousands)
Group A Units $ 4,494  $ (11,625) $ (62,973) $ (27,142)
Other (101) 190  (579) 489 
  $ 4,393  $ (11,435) $ (63,552) $ (26,653)
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

The following table presents the components of the shareholders’ equity attributable to noncontrolling interests:
  September 30, 2020 December 31, 2019
(dollars in thousands)
Group A Units $ 391,959  $ 434,943 
Other 8,701  5,836 
  $ 400,660  $ 440,779 
The Preferred Units and fund investors’ interests in certain consolidated funds (which were deconsolidated in the third quarter of 2019) are redeemable outside of the Company’s control. These interests are classified within redeemable noncontrolling interests in the consolidated balance sheets. The following tables present the activity in redeemable noncontrolling interests:
Three Months Ended September 30,
2020 2019
Preferred Units Funds Preferred Units Total
(dollars in thousands)
Beginning Balance
$ 153,313  $ 97,229  $ 150,000  $ 247,229 
Change in redemption value of Preferred Units
2,285  —  —  — 
Capital contributions
—  102  —  102 
Capital distributions —  (54,532) —  (54,532)
Funds deconsolidation —  (43,373) —  (43,373)
Comprehensive income —  574  —  574 
Ending Balance $ 155,598  $   $ 150,000  $ 150,000 
Nine Months Ended September 30,
2020 2019
Preferred Units Funds Preferred Units Total
(dollars in thousands)
Beginning balance $ 150,000  $ 157,660  $ 420,000  $ 577,660 
Fair value of Debt Securities exchanged for 2016 Preferred Units
—  —  (167,799) (167,799)
Fair value of 2019 Preferred Units exchanged for 2016 Preferred Units
—  —  (137,759) (137,759)
Issuance of 2019 Preferred Units, net of issuance costs
—  —  136,964  136,964 
Change in redemption value of Preferred Units
5,598  —  (101,406) (101,406)
Capital contributions
—  3,747  —  3,747 
Capital distributions —  (126,779) —  (126,779)
Funds deconsolidation —  (43,373) —  (43,373)
Comprehensive income —  8,745  —  8,745 
Ending Balance $ 155,598  $   $ 150,000  $ 150,000 

18


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

5. INVESTMENTS AND FAIR VALUE DISCLOSURES
The following table presents the components of the Company’s investments as reported in the consolidated balance sheets:
September 30, 2020 December 31, 2019
(dollars in thousands)
United States government obligations, at fair value $ 152,174  $ 146,565 
CLOs, at fair value 188,640  182,870 
Other investments, equity method 95,281  81,991 
Total Investments $ 436,095  $ 411,426 
Fair Value Disclosures
Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date (i.e., an exit price). Due to the inherent uncertainty of valuations of investments that are determined to be illiquid or do not have readily ascertainable fair values, the estimates of fair value may differ from the values ultimately realized, and those differences can be material.
GAAP prioritizes the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of assets and liabilities and the specific characteristics of the assets and liabilities. Assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively-quoted prices generally will have a higher degree of market price observability and lesser degree of judgment used in measuring fair value.
Assets and liabilities measured at fair value are classified into one of the following categories:
Level I – Fair value is determined using quoted prices that are available in active markets for identical assets or liabilities. The types of assets and liabilities that would generally be included in this category are certain listed equities, U.S. government obligations and certain listed derivatives.
Level II – Fair value is determined using quotations received from dealers making a market for these assets or liabilities (“broker quotes”), valuations obtained from independent third-party pricing services, the use of models or other valuation methodologies based on pricing inputs that are either directly or indirectly market observable as of the measurement date. The types of assets and liabilities that would generally be included in this category are certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, less liquid equity securities, forward contracts and certain over the-counter (“OTC”) derivatives.
Level III – Fair value is determined using pricing inputs that are unobservable in the market and includes situations where there is little, if any, market activity for the asset or liability. The fair value of assets and liabilities in this category may require significant judgment or estimation in determining fair value of the assets or liabilities. The fair value of these assets and liabilities may be estimated using a combination of observed transaction prices, independent pricing services, relevant broker quotes, models or other valuation methodologies based on pricing inputs that are neither directly or indirectly market observable. The types of assets and liabilities that would generally be included in this category include CLOs, real estate investments, equity and debt securities issued by private entities, limited partnerships, certain corporate bonds, certain credit default swap contracts, certain bank debt securities, certain commercial real estate debt, certain OTC derivatives, residential and commercial mortgage-backed securities, asset-backed securities, collateralized debt obligations and investments in affiliated credit funds.
19


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of an input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Fair Value Measurements Categorized within the Fair Value Hierarchy
The following table summarizes the Company’s investments measured at fair value on a recurring basis within the fair value hierarchy as of September 30, 2020:
  As of September 30, 2020
  Level I Level II Level III Total
  (dollars in thousands)
Assets, at Fair Value
Included within cash and cash equivalents:
United States government obligations $ 83,899  $ —  $ —  $ 83,899 
Included within investments:
United States government obligations $ 152,174  $ —  $ —  $ 152,174 
CLOs(1)
$ —  $ —  $ 188,640  $ 188,640 
_______________
(1) As of September 30, 2020, investments in CLOs had contractual principal amounts of $178.9 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.
The following table summarizes the Company’s investments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2019:
  As of December 31, 2019
  Level I Level II Level III Total
  (dollars in thousands)
Assets, at Fair Value
Included within cash and cash equivalents:
United States government obligations $ 97,034  $ —  $ —  $ 97,034 
Included within investments:
United States government obligations $ 146,565  $ —  $ —  $ 146,565 
CLOs(1)
$ —  $ —  $ 182,870  $ 182,870 
_______________
(1) As of December 31, 2019, investments in CLOs had contractual principal amounts of $170.0 million outstanding, which excludes the Company’s investments in subordinated tranches of the notes, as these do not have contractual principal payments.
Reconciliation of Fair Value Measurements Categorized within Level III
Gains and losses, excluding those of the consolidated funds are recorded within net gains (losses) on investments in the consolidated statements of comprehensive income (loss), and gains and losses of the consolidated funds are recorded within net (losses) gains of consolidated funds. Amortization of premium, accretion of discount and foreign exchange gains and losses on non-U.S. Dollar investments are also included within gains and losses in the tables below.
20


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

The following table summarizes the changes in the Company’s Level III assets and liabilities for the three months ended September 30, 2020:
June 30, 2020 Transfers
In
Transfers
Out
Investment
Purchases / Issuances
Investment
Sales / Settlements
Gains / Losses September 30, 2020
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs
$ 178,842  $ —  $ —  $ 778  $ (103) $ 9,123  $ 188,640 
The following table summarizes the changes in the Company’s Level III assets and liabilities for the three months ended September 30, 2019:
June 30, 2019 Transfers
In
Transfers
Out
Investment
Purchases / Issuances
Investment
Sales / Settlements
Gains / Losses September 30, 2019
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs
$ 181,547  $ —  $ —  $ 1,709  $ (28) $ (6,489) $ 176,739 
Investments of consolidated funds:
Bank debt
$ 36,130  $ 5,326  $ (17,427) $ 9,231  $ (33,283) $ 23  $ — 
The following table summarizes the changes in the Company’s Level III assets and liabilities for the nine months ended September 30, 2020:
December 31, 2019 Transfers In Transfers Out Investment Purchases / Issuances Investment Sales / Settlements Gains / Losses September 30, 2020
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 182,870  $ —  $ —  $ 5,185  $ (288) $ 873  $ 188,640 
The following table summarizes the changes in the Company’s Level III assets and liabilities for the nine months ended September 30, 2019:
December 31, 2018 Transfers In Transfers Out Investment Purchases / Issuances Investment Sales / Settlements Gains / Losses September 30, 2019
(dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 181,868  $ —  $ —  $ 28,420  $ (27,778) $ (5,771) $ 176,739 
Investments of consolidated funds:
Bank debt $ 75,613  $ 7,982  $ (40,272) $ 29,601  $ (73,772) $ 848  $ — 
Corporate bonds $ —  $ —  $ —  $ 987  $ (981) $ (6) $ — 
Transfers out of Level III presented in the tables above resulted from the fair values of certain securities becoming market observable, with fair value determined using independent pricing services. Transfers into Level III presented in the tables
21


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

above resulted from the valuation of certain investments with decreased market observability, with fair values determined using independent pricing services.
The table below summarizes the net change in unrealized gains and losses on the Company’s Level III investments held as of the reporting date:
  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
  (dollars in thousands)
Assets, at Fair Value
Included within investments:
CLOs $ 3,185  $ (463) $ 873  $ (5,612)
Valuation Methodologies for Fair Value Measurements Categorized within Levels II and III
Investments in CLOs, bank debt and corporate bonds are valued using independent pricing services, and therefore the Company does not have transparency into the significant inputs used by such services.
The Company elected to measure its investments in CLOs at fair value through consolidated net income (loss) in order to simplify its accounting for these instruments. Changes in fair value of these investments are included within net gains on investments in the consolidated statements of comprehensive income (loss). The Company accrues interest income on its investments in CLOs using the effective interest method.
Fair Value of Other Financial Instruments
Management estimates that the carrying value of the Company’s other financial instruments, including its debt obligations and repurchase agreements, approximated their fair values as of September 30, 2020. The fair value measurements for the Company’s debt obligations and repurchase agreements are categorized as Level III within the fair value hierarchy and were determined using independent pricing services.
Loans Sold to CLOs Managed by the Company
From time to time the Company sells loans to CLOs managed by the Company. These loans are purchased by the Company in the open market and sold for cash at cost to the CLOs. The loans are accounted for as transfers of financial assets as they meet the criteria for derecognition under GAAP. No loans were sold in the nine months ended September 30, 2020 and 2019. The Company invests in senior secured and subordinated notes issued by certain CLOs to which it sold loans in the past. These investments represent retained interests to the Company and are in the form of a 5% vertical strip (i.e., 5% of each of the senior and subordinated tranches of notes issued by each CLO). The retained interests are reported within investments on the Company’s consolidated balance sheet. As of September 30, 2020 and December 31, 2019, the Company’s investments in these retained interests had a fair value of $86.7 million and $88.2 million, respectively.
The Company is subject to risks associated with the performance of the underlying collateral and the market yield of the assets. The Company’s risk of loss from retained interest is limited to its investments in these interests. The Company receives quarterly payments of interest and principal, as applicable, on these retained interests. In the nine months ended September 30, 2020 and 2019, the Company received $2.3 million and $3.0 million, respectively, of interest and principal payments related to the retained interests.
The Company uses independent pricing services to value its investments in the CLOs, including the retained interests, and therefore the only key assumption is the price provided by such service. A corresponding adverse change of 10% or 20% on price would have a corresponding impact on the fair value of the Company’s investments in CLOs.
22


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

6. VARIABLE INTEREST ENTITIES
In the ordinary course of business, the Company sponsors the formation of funds that are considered VIEs. See Note 2 of the Company's Annual Report for a discussion of entities that are VIEs and the evaluation of those entities for consolidation by the Company. The assets and liabilities of consolidated VIEs were not material as of September 30, 2020 and December 31, 2019.
The Company’s direct involvement with funds that are VIEs and not consolidated by the Company is generally limited to providing asset management services and, in certain cases, insignificant investments in the VIEs. The maximum exposure to loss represents the potential loss of current investments or income and fees receivables from these entities, as well as the obligation to repay unearned revenues, primarily incentive income subject to clawback, in the event of any future fund losses. The Company has commitments to certain funds that are VIEs as discussed in Note 18. The Company does not provide, nor is it required to provide, any type of non-contractual financial or other support to its VIEs that are not consolidated.
The table below presents the net assets of VIEs in which the Company has variable interests along with the maximum risk of loss as a result of the Company’s involvement with VIEs:
September 30, 2020 December 31, 2019
(dollars in thousands)
Net assets of unconsolidated VIEs in which the Company has a variable interest $ 9,531,763  $ 8,805,128 
Maximum risk of loss as a result of the Company’s involvement with VIEs:
Unearned revenues 72,421  63,337 
Income and fees receivable 11,023  21,841 
Investments 208,691  200,215 
Maximum Exposure to Loss $ 292,135  $ 285,393 

7. LEASES
The Company has non-cancelable operating leases for its headquarters in New York and its offices in London, Hong Kong, Shanghai, and various other locations and data centers. The Company does not have renewal options, other than a three-year renewal option for its lease in Hong Kong, which was not included in the determination of the related lease asset and liability. The Company also subleases a portion of its office space in London through the end of the lease term. Finally, the Company has finance leases for computer hardware.
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(dollars in thousands)
Lease Cost
Operating lease cost $ 5,152  $ 5,135  $ 15,440  $ 15,430 
Short-term lease cost 13  13  38  45 
Finance lease cost - amortization of leased assets 199  137  529  411 
Finance lease cost - imputed interest on lease liabilities 19  22  57  71 
Less: Sublease income (391) (380) (1,145) (1,145)
Net Lease Cost $ 4,992  $ 4,927  $ 14,919  $ 14,812 
23


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020


Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(dollars in thousands)
Supplemental Lease Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases $ 5,634  $ 8,731  $ 16,837  $ 20,109 
Operating cash flows for finance leases $ $ 22  $ $ 71 
Finance cash flows for finance leases $ 256  $ 154  $ 907  $ 611 
Right-of-use assets obtained in exchange for lease obligations
Operating leases $ —  $ —  $ $ 126,007 
Finance leases $ —  $ —  $ 745  $ 1,702 

September 30, 2020 December 31, 2019
Lease Term and Discount Rate
Weighted average remaining lease term
Operating leases 8.7 years 9.3 years
Finance leases 1.9 years 2.1 years
Weighted average discount rate
Operating leases 7.9  % 7.9  %
Finance leases 7.2  % 7.9  %

Operating
Leases
Finance
Leases
(dollars in thousands)
Maturity of Lease Liabilities
October 1, 2020 to December 31, 2020 $ 5,635  $ — 
2021 21,028  867 
2022 19,831  248 
2023 19,125  — 
2024 15,353  — 
Thereafter 82,234  — 
Total Lease Payments 163,206  1,115 
Imputed interest (45,115) (49)
Total Lease Liabilities $ 118,091  $ 1,066 
As of September 30, 2020, the Company has pledged collateral related to its lease obligations of $6.2 million, which is included within investments in the consolidated balance sheets.
24


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

Operating Leases
  (dollars in thousands)
Sublease Rent Payments Receivable
October 1, 2020 to December 31, 2020 $ 384 
2021 1,537 
2022 1,537 
2023 1,204 
2024 — 
Thereafter — 
Total Sublease Rent Payments Receivable $ 4,662 

8. DEBT OBLIGATIONS
Debt Securities 2018 Term Loan CLO Investments Loans Total
(dollars in thousands)
Maturity of Debt Obligations
October 1, 2020 to December 31, 2020 $   $   $   $  
2021     6,576  6,576 
2022 40,000    484  40,484 
2023 40,000  8,500    48,500 
2024 40,000    19,120  59,120 
Thereafter 80,000    39,035  119,035 
Total Payments 200,000  8,500  65,215  273,715 
Unamortized discounts & deferred financing costs (14,480) (130) (310) (14,920)
Total Debt Obligations $ 185,520  $ 8,370  $ 64,905  $ 258,795 
Debt Securities
In connection with the Recapitalization, the Sculptor Operating Partnerships, each as a borrower, entered into an unsecured senior subordinated term loan credit and guaranty agreement (the “Subordinated Credit Agreement”) under which $200.0 million of Debt Securities were issued in exchange for an equal amount of 2016 Preferred Units. In the near future, the Company is expected to repay all amounts outstanding under the Debt Securities at a 5% discount upon the closing of the 2020 Term Loan (as defined below). See the Company’s Annual Report for additional information regarding the Debt Securities.
2018 Term Loan
On April 10, 2018, Sculptor Capital LP, as borrower, and certain other subsidiaries of the Company, as guarantors, entered into a senior secured credit and guaranty agreement consisting of (i) a $250.0 million term loan facility (the “2018 Term Loan”) and (ii) a $100.0 million revolving credit facility (the “2018 Revolving Credit Facility”). Effective as of February 7, 2019, the Company terminated in full the commitments under the 2018 Revolving Credit Facility.
In accordance with the Cash Sweep described in Note 3, the Company repaid $36.5 million of the 2018 Term Loan during the first nine months of 2020. In the near future, the Company is expected to repay all amounts outstanding under the
25


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

2018 Term Loan upon the closing of the 2020 Term Loan. See the Company’s Annual Report for additional information regarding the 2018 Term Loan.
2020 Credit Agreement
On September 25, 2020, Sculptor Capital LP, as borrower, (the “Borrower”), and certain other subsidiaries of the Company, as guarantors, entered into a credit and guaranty agreement (the “2020 Credit Agreement”), with Delaware Life Insurance Company (“Delaware Life”), consisting of (i) a senior secured term loan facility in an initial aggregate principal amount of $320.0 million (the “2020 Term Loan”) and (ii) a senior secured revolving credit facility in an initial aggregate principal amount of $25.0 million (the “2020 Revolving Credit Facility”). The 2020 Term Loan and the 2020 Revolving Credit Facility mature on the seventh and sixth anniversary, respectively, of the initial funding of the 2020 Term Loan, which, we expect will occur in the near future (the “Closing Date”). Proceeds from the 2020 Term Loan, together with cash on hand, will be used on the Closing Date to repay the Debt Securities and the 2018 Term Loan, as well as to redeem the 2019 Preferred Units in full.
Borrowings under the 2020 Credit Agreement bear interest at a per annum rate equal to, at the Company’s option, one, two, three or six month LIBOR (subject to a 0.75% floor) plus 6.25%, or a base rate (subject to a 1.75% floor) plus 5.25%. The interest rate will increase to LIBOR plus 8.25%, or a base rate plus 7.25%, in the event that (i) certain repayments of the 2020 Term Loan plus any repurchases of Sculptor Operating Group units for up to $50.0 million (the “Minimum Prepayment/Buyback Amount”) are less than $100.0 million as of May 15, 2021, (ii) certain repayments of the 2020 Term Loan (the “Minimum Term Loan Prepayment Amount”) are less than $100.0 million as of March 31, 2022, (clauses (i) and (ii), each a “Prepayment Based Step-Up Event”) or (iii) only in the event that a “Fall-Away Trigger” (as described below) has not occurred, the Total Net Leverage Ratio (as defined in the 2020 Credit Agreement) exceeds 3.00 to 1.00 (“Leverage Based Step-Up Event”); provided, that the interest rate will subsequently decrease back to LIBOR plus 6.25%, or base rate plus 5.25%, in the event (a) following the occurrence of a Leverage Based Step-Up Event, the Total Net Leverage Ratio no longer exceeds 3.00 to 1.00 or (b) following the occurrence of a Prepayment Based Step-Up Event, (i) prior to March 31, 2022, the Minimum Prepayment/Buyback Amount is equal to or greater than $100.0 million and (ii) on or after March 31, 2022, the Minimum Term Loan Prepayment Amount is equal to or greater than $100.0 million.
A Fall-Away Trigger occurs upon the earlier of (i) when the Company has repaid, under certain provisions of the 2020 Credit Agreement, at least $175.0 million on the 2020 Term Loan and (ii) receipt by the Borrower of a senior unsecured debt rating (a “Debt Rating”) that is equal to or higher than BBB- by S&P or Fitch or Baa3 by Moody’s (a “Rating Upgrade”). The Borrower is also required to pay an undrawn commitment fee at a rate per annum equal to 0.50% of the undrawn portion of the 2020 Revolving Credit Facility.
The “Financial Covenant Period” means the period from the Closing Date to the date on which a Fall-Away Trigger has occurred. To the extent the Fall-Away Trigger relates to a Ratings Upgrade and occurs prior to the repayment of at least $175.0 million on the 2020 Term Loan as discussed above, then the Financial Covenant Period will again apply if the Borrower receives a Debt Rating equal to or less than BB+ by S&P or Fitch or Ba1 by Moody’s (or the absence of a Debt Rating), provided the highest rating will control, and will continue until a Fall-Away Trigger occurs again.
The 2020 Term Loan will amortize in equal quarterly installments in aggregate annual amounts equal to 0.75% of the
original principal amount of the 2020 Term Loan. On or prior to the 95th day after the end of each fiscal year, the Borrower is required to prepay the 2020 Term Loan in an amount equal to (a) 100% of Adjusted Distributable Earnings (as defined in the 2020 Credit Agreement), so long as an aggregate amount not exceeding $100.0 million of the 2020 Term Loan has been repaid, (b) 25% of Adjusted Distributable Earnings, so long as an aggregate amount of at least $100.0 million but not more than $150.0 million of the 2020 Term Loan has been repaid and (c) 0% of Adjusted Distributable Earnings, so long as an aggregate amount exceeding $150.0 million of the 2020 Term Loan has been repaid. These prepayments are reduced by any amounts of the 2020 Term Loan voluntarily prepaid during such applicable fiscal year (or contractually committed during such fiscal year to be made within 90 days of the last day of such fiscal year). The foregoing Adjusted Distributable Earnings prepayment shall only be required if, after giving pro forma effect to such mandatory prepayment, the Free Cash Balance (as defined in the 2020 Credit Agreement) as of the end of such fiscal year would not be less than $75.0 million. With respect to the fiscal year ending December
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

31, 2020, the prepayments will be for any Adjusted Distributable Earnings earned during the period from the Closing Date to December 31, 2020. The 2020 Credit Agreement contains other customary prepayment provisions.
Certain prepayments of the 2020 Term Loan are subject to a prepayment premium (the “Call Premium”) equal to (a) prior to the second anniversary of the Closing Date, a customary “make-whole” premium equal to the present value of all required interest payments that would be due from the date of prepayment through and including the second anniversary of the Closing Date plus a premium of 3.0% of the principal amount of loans prepaid, (b) on or after the second anniversary of the Closing Date but prior to the third anniversary of the Closing Date, a premium of 3.0% of the principal amount of loans prepaid, (c) on or after the third anniversary of the Closing Date but prior to the four anniversary of the Closing Date, a premium of 2.0% of the principal amount of loans prepaid and (d) thereafter, 0%. The Call Premium shall not apply to voluntary prepayments of the 2020 Term Loan of up to (x) $175.0 million in the aggregate on or prior to March 31, 2022 or (y) $100.0 million of aggregate principal amount at any time.
The 2020 Credit Agreement includes three financial maintenance covenants. The first financial maintenance covenant prohibits the total fee-paying assets under management, subject to certain exclusions, of the Borrower, the guarantors and their consolidated subsidiaries as of the last day of any fiscal quarter to be less than $20.0 billion. The second financial maintenance covenant, which only applies during the Financial Covenant Period, prohibits the total net leverage ratio as of the last day of any fiscal quarter, commencing with the first full fiscal quarter ending after the Closing Date, to exceed 4.50 to 1.00. The third financial maintenance covenant, which only applies during the Financial Covenant Period, prohibits, as of the last day of two consecutive fiscal quarters, the sum of (i) cash and cash equivalents (including U.S. government obligations with a maturity of twelve months or less), (ii) undrawn commitments under the 2020 Revolving Credit Facility, and (iii) certain income and fees receivable and other revenue receivables of the Borrower, the guarantors and their consolidated subsidiaries to be less than (i) from the Closing Date until at least $100.0 million of the 2020 Term Loan has been repaid, under certain provisions of the 2020 Credit Agreement, $100.0 million and (ii) thereafter, $50.0 million. The 2020 Credit Agreement allows a limited right to cure an event of default resulting from noncompliance with the total net leverage ratio test described above with an equity contribution made to the Borrower.
The 2020 Credit Agreement contains customary events of default for a transaction of this type, after which obligations under the 2020 Credit Agreement may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Borrower, the guarantors or any of the material subsidiaries of the foregoing after which the obligations under the 2020 Credit Agreement become automatically due and payable.
Pursuant to the 2020 Credit Agreement, the Company expects in the near future to issue Delaware Life warrants to purchase approximately 4.3 million Class A Shares. The warrants have a 10-year term and an exercise price per share equal to $11.93. The exercise price is subject to reduction for to any dividends paid on the Class A Shares. The warrants will provide for customary adjustments in the event of a stock split, stock dividend, recapitalization or similar event. If the Company undergoes a change of control prior to the expiration date, the holder will have the right to require the Company to repurchase any remaining portion of the warrants not yet exercised at their Black-Scholes value as provided for in the agreement. The warrants will restrict transfers and other dispositions for 18 months from the Closing Date, subject to certain exceptions.
CLO Investments Loans
The Company entered into loans to finance portions of investments in certain CLOs (collectively, the “CLO Investments Loans”). In general, the Company will make interest and principal payments on the loans at such time interest payments are received on its investments in the CLOs, and will make principal payments on the loans to the extent principal payments are received on its investments in the CLOs, with any remaining balance due upon maturity.
The loans are subject to customary events of default and covenants and also include terms that require the Company’s continued involvement with the CLOs. In addition to customary events of default included in financing arrangements of this type, an event of default would also be triggered if there is an event of default at the CLO level. Prior to the relevant CLO’s maturity date, this would include certain material covenant breaches, regulatory and insolvency events for the relevant CLO issuer, as well
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

as a payment default, where the relevant CLO is unable to make interest payments on the senior, non-deferrable interest notes issued by the CLO. The CLO Investments Loans do not have any financial maintenance covenants and are secured by the related investments in CLOs, which investments had fair values of $64.5 million and $65.9 million as of September 30, 2020 and December 31, 2019, respectively.
Carrying amounts presented in the table below are net of discounts, if any, and unamortized deferred financing costs. The interest rates on the CLO Investments Loans are variable based on LIBOR or EURIBOR (subject to a floor of zero percent). The maturity date for each CLO Investments Loan is the earlier of the final maturity date presented in the table below or the date at which the Company no longer holds a risk retention investment in the respective CLO.
Initial Borrowing Date Contractual Rate Final Maturity Date Carrying Value
September 30, 2020 December 31, 2019
(dollars in thousands)
June 7, 2017 LIBOR plus 1.48% November 16, 2029 $ 17,195  $ 17,245 
August 2, 2017 LIBOR plus 1.41% January 21, 2030 21,582  21,679 
September 14, 2017 EURIBOR plus 2.21% September 14, 2024 19,067  18,237 
August 1, 2019 EURIBOR plus 1.15% June 29, 2021 6,576  3,464 
February 27, 2020 EURIBOR plus 0.80% January 11, 2022 485  — 
$ 64,905  $ 60,625 

9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
On May 29, 2018, the Company entered into a €100.0 million master credit facility agreement (the “CLO Financing Facility”) to finance a portion of the risk retention investments in certain European CLOs managed by the Company. Subject to the terms and conditions of the CLO Financing Facility, the Company and the counterparty may enter into repurchase agreements on such terms agreed upon by the parties. Each transaction entered into under the CLO Financing Facility will bear interest at a rate based on the weighted average effective interest rate of each class of securities that have been sold plus a spread to be agreed upon by the parties. As of September 30, 2020, €12.3 million of the CLO Financing Facility remained available. On October 12, 2020, the Company amended the CLO Financing Facility to increase its borrowing capacity to €200.0 million.
Each transaction entered into under the CLO Financing Facility provides for payment netting and, in the case of a default or similar event with respect to the counterparty to the CLO Financing Facility, provides for netting across transactions. Generally, upon a counterparty default, the Company can terminate all transactions under the CLO Financing Facility and offset amounts it owes in respect of any one transaction against collateral it has received in respect of any other transactions under the CLO Financing Facility; provided, however, that in the case of certain defaults, the Company may only be able to terminate and offset solely with respect to the transaction affected by the default. During the term of a transaction entered into under the CLO Financing Facility, the Company will deliver cash or additional securities acceptable to the counterparty if the securities sold are in default. In addition to customary events of default included in financing arrangements of this type, an event of default would also be triggered if there is an event of default at the CLO level. Prior to the relevant CLO’s maturity date, this would include certain material covenant breaches, regulatory and insolvency events for the relevant CLO issuer, as well as a payment default where the relevant CLO is unable to make interest payments on the senior, non-deferrable interest notes issued by the CLO. Upon termination of a transaction, the Company will repurchase the previously sold securities from the counterparty at a previously determined repurchase price. The CLO Financing Facility may be terminated at any time upon certain defaults or circumstances agreed upon by the parties.
The repurchase agreements may result in credit exposure in the event the counterparty to the transaction is unable to fulfill its contractual obligations. The Company minimizes the credit risk associated with these activities by monitoring counterparty credit exposure and collateral values. Other than margin requirements, the Company is not subject to additional
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

terms or contingencies which would expose the Company to additional obligations based upon the performance of the securities pledged as collateral.
The table below presents securities sold under agreements to repurchase that are offset, if any, as well as securities transferred to counterparties related to such transactions (capped so that the net amount presented will not be reduced below zero). No other material financial instruments were subject to master netting agreements or other similar agreements:
Securities Sold under Agreements to Repurchase Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Liabilities in the Consolidated Balance Sheet Securities Transferred Net Amount
  (dollars in thousands)
As of September 30, 2020 $ 101,892  $ —  $ 101,892  $ 101,843  $ 49 
As of December 31, 2019 $ 97,508  $ —  $ 97,508  $ 97,508  $ — 
The securities sold under agreements to repurchase have a set scheduled maturity date that corresponds to the maturities of the securities sold under such transaction. The table below presents the remaining final contractual maturity of the securities sold under agreement to repurchase by class of collateral pledged:
Investments in CLOs
Securities Sold under Agreements to Repurchase Overnight and Continuous Up to 30 Days 30-90 Days Greater Than 90 Days Total
(dollars in thousands)
As of September 30, 2020 $ —  $ —  $ —  $ 101,892  $ 101,892 
As of December 31, 2019 $ —  $ —  $ —  $ 97,508  $ 97,508 

10. PREFERRED UNITS
In the near future, the Company is expected to redeem the 2019 Preferred Units in full at a 25% discount upon the closing of the 2020 Term Loan. See the Company’s Annual Report for additional information regarding the 2019 Preferred Units.
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

11. OTHER ASSETS, NET
The following table presents the components of other assets, net as reported in the consolidated balance sheets:
September 30, 2020 December 31, 2019
(dollars in thousands)
Fixed Assets:    
  Leasehold improvements $ 52,798  $ 52,798 
  Computer hardware and software 49,484  47,361 
  Furniture, fixtures and equipment 8,411  8,411 
  Accumulated depreciation and amortization (79,108) (73,730)
Fixed assets, net 31,585  34,840 
Goodwill 22,691  22,691 
Prepaid expenses 14,497  18,507 
Other 6,230  6,570 
Total Other Assets, Net $ 75,003  $ 82,608 

12. OTHER LIABILITIES
The following table presents the components of other liabilities as reported in the consolidated balance sheets:
  September 30, 2020 December 31, 2019
  (dollars in thousands)
Legal provisions{1)
$ 138,040  $ 19,100 
Accrued expenses 12,637  19,275 
Uncertain tax positions 8,250  8,250 
Unearned management fee 6,410  311 
Unused trade commissions 3,863  5,192 
Other 7,165  7,089 
Total Other Liabilities $ 176,365  $ 59,217 
_______________
(1)See Note 18 for additional details.
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

13. REVENUES
The following table presents management fees and incentive income recognized as revenues for the three months ended September 30, 2020 and 2019:
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Management Fees Incentive Income Management Fees Incentive Income
(dollars in thousands)
Multi-strategy funds $ 33,239  $ 22,013  $ 34,201  $ 13,732 
Credit
    Opportunistic credit funds 12,512  16,585  11,217  2,664 
    Institutional Credit Strategies 13,302  —  14,713  — 
Real estate funds 9,000  2,927  2,613  14,027 
Other —  —  212  — 
Total $ 68,053  $ 41,525  $ 62,956  $ 30,423 
The following table presents management fees and incentive income recognized as revenues for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Management Fees Incentive Income Management Fees Incentive Income
(dollars in thousands)
Multi-strategy funds $ 94,826  $ 58,377  $ 102,801  $ 59,516 
Credit
    Opportunistic credit funds 33,308  24,005  32,356  35,653 
    Institutional Credit Strategies 36,653  —  42,284  — 
Real estate funds 30,594  6,703  9,862  23,209 
Other —  676  — 
Total $ 195,389  $ 89,085  $ 187,979  $ 118,378 
A liability for unearned incentive income is generally recognized when the Company receives incentive income distributions from its funds, primarily its real estate funds, whereby the distributions received have not yet met the recognition threshold of being probable that a significant reversal of cumulative revenue will not occur. The following table presents the activity in the Company’s unearned incentive income for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30,
2020 2019
(dollars in thousands)
Beginning of Period $ 60,798  $ 61,397 
Amounts collected during the period 8,887  20,168 
Amounts recognized during the period (2,793) (18,174)
End of Period $ 66,892  $ 63,391 
The Company recognizes management fees over the period in which the performance obligation is satisfied. The Company records incentive income when it is probable that a significant reversal of income will not occur. The majority of management fees and incentive income receivable at each balance sheet date is generally collected during the following quarter.
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

The following table presents the composition of the Company’s income and fees receivable as of September 30, 2020 and December 31, 2019:
September 30, 2020 December 31, 2019
(dollars in thousands)
Management fees $ 23,767  $ 25,726 
Incentive income 13,941  189,669 
Income and Fees Receivable $ 37,708  $ 215,395 

14. INCOME TAXES
The computation of the effective tax rate and provision at each interim period requires the use of certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent differences, and the likelihood of recovering deferred tax assets existing as of the balance sheet date. The estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as tax laws and regulations change. Accordingly, the effective tax rate for interim periods is not indicative of the tax rate expected for a full year.
The Sculptor Operating Partnerships are partnerships for U.S. federal income tax purposes. The Registrant was a partnership for U.S. federal income tax purposes until the Corporate Classification Change on April 1, 2019. Prior to the Corporate Classification Change, only a portion of the income the Company earned has been subject to corporate-level income taxes in the United States and foreign jurisdictions. Following the Corporate Classification Change, generally all of the income the Registrant earns will be subject to corporate-level income taxes in the United States allowing us to realize a portion of our deferred tax assets on an accelerated basis as compared to under our prior structure.
The Company’s income tax provision and related income tax assets and liabilities are based on, among other things, an estimate of the impact of the Corporate Classification Change, inclusive of an analysis of tax basis and state tax implications of certain partnerships and their underlying assets and liabilities as of April 1, 2019. The Company’s estimate is based on the most recent information available; however, the impact of the conversion cannot be finally determined until the Company’s 2019 tax returns have been finalized. The Company does not currently expect such information to become available until the fourth quarter of 2020. The tax basis and state impact of the partnerships and their underlying assets and liabilities are based on estimates subject to finalization of the Company’s tax returns, and the impact of the Corporate Classification Change may differ, possibly materially, from the current estimates described herein.
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SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020

The following is a reconciliation of the statutory U.S. federal income tax rate to the Company’s effective income tax rate: 
  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
Statutory U.S. federal income tax rate 21.00  % 21.00  % 21.00  % 21.00  %
Income passed through to noncontrolling interests -0.39  % 0.44  % -1.38  % 4.18  %
Nondeductible transaction costs —  % —  % —  % -4.66  %
Tax effects of income recorded to equity in connection with the Recapitalization —  % —  % —  % 3.46  %
Foreign income taxes 4.57  % -2.93  % -2.03  % -7.38  %
RSU excess income tax benefit or expense 2.29  % -0.29  % -0.44  % -3.72  %
State and local income taxes 5.44  % 1.62  % 3.47  % -13.44  %
Nondeductible amortization of Partner Equity Units 5.66  % -10.19  % -4.36  % -22.99  %
Nondeductible interest expense 0.85  % -5.72  % -0.74  % -4.57  %
Other, net -0.42  % -0.07  % -0.72  % 2.36  %
Effective Income Tax Rate 39.00  % 3.86  % 14.80  % -25.76  %
The Company recognizes tax benefits for amounts that are “more likely than not” to be sustained upon examination by tax authorities. For uncertain tax positions in which the benefit to be realized does not meet the “more likely than not” threshold, the Company establishes a liability, which is included within other liabilities in the consolidated balance sheets. As of September 30, 2020 and December 31, 2019, the Company had a liability for unrecognized tax benefits of $8.3 million. As of and for the nine months ended September 30, 2020, the Company did not accrue interest or penalties related to uncertain tax positions. As of September 30, 2020, the Company does not believe that there will be a significant change to the uncertain tax positions during the next 12 months. The Company’s total unrecognized tax benefits that, if recognized, would affect its effective tax rate was $4.8 million as of September 30, 2020.
15. GENERAL, ADMINISTRATIVE AND OTHER
The following table presents the components of general, administrative and other expenses as reported in the consolidated statements of comprehensive income (loss):
  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019