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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 June 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 SCUNew 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 July 31, 2020, there were 22,415,766 Class A Shares and 32,820,414 Class B Shares outstanding.
 




SCULPTOR CAPITAL MANAGEMENT, INC.
TABLE OF CONTENTS
 
  Page
PART I — FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
PART II — OTHER INFORMATION 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 

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 UnitsOne 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; 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 quarter ended March 31, 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

 June 30, 2020December 31, 2019
 (dollars in thousands)
Assets  
Cash and cash equivalents$127,702  $240,938  
Restricted cash4,538  4,501  
Investments (includes assets measured at fair value of $385,276 and $329,435, including assets sold under agreements to repurchase of $96,505 and $98,085 as of June 30, 2020 and December 31, 2019, respectively)
471,344  411,426  
Income and fees receivable73,104  215,395  
Due from related parties20,435  15,355  
Deferred income tax assets341,283  310,557  
Operating lease assets110,374  115,810  
Other assets, net76,523  82,608  
Assets of consolidated funds: 
Other assets of consolidated funds650  649  
Total Assets$1,225,953  $1,397,239  
Liabilities and Shareholders’ Equity 
Liabilities  
Compensation payable$45,197  $187,180  
Unearned incentive income64,607  60,798  
Due to related parties194,518  211,915  
Operating lease liabilities120,990  128,043  
Debt obligations256,341  286,728  
Securities sold under agreements to repurchase97,670  97,508  
Other liabilities169,824  59,217  
Liabilities of consolidated funds: 
Other liabilities of consolidated funds408  389  
Total Liabilities949,555  1,031,778  
Commitments and Contingencies (Note 18)
Redeemable Noncontrolling Interests (Note 4)153,313  150,000  
Shareholders’ Equity  
Class A Shares, par value $0.01 per share, 100,000,000 and 100,000,000 shares authorized, 22,311,432 and 21,284,945 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
223  213  
Class B Shares, par value $0.01 per share, 75,000,000 and 75,000,000 shares authorized, 32,820,414 and 29,208,952 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
328  292  
Additional paid-in capital142,288  117,936  
Accumulated deficit(406,440) (343,759) 
Shareholders’ deficit attributable to Class A Shareholders(263,601) (225,318) 
Shareholders’ equity attributable to noncontrolling interests386,686  440,779  
Total Shareholders’ Equity123,085  215,461  
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity$1,225,953  $1,397,239  
See notes to consolidated financial statements.
5


SCULPTOR CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) — UNAUDITED
 Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
 (dollars in thousands)
Revenues    
Management fees$60,383  $61,400  $127,336  $125,023  
Incentive income38,238  34,757  47,560  87,955  
Other revenues2,424  5,043  5,377  8,812  
Income of consolidated funds32  2,308  32  4,912  
Total Revenues101,077  103,508  180,305  226,702  

Expenses    
Compensation and benefits65,290  80,709  132,709  166,424  
Interest expense4,674  6,523  10,456  12,731  
General, administrative and other142,615  28,427  177,321  66,215  
Expenses of consolidated funds19  84  19  139  
Total Expenses212,598  115,743  320,505  245,509  

Other Income (Loss)    
Changes in tax receivable agreement liability  5,362  278  5,362  
Net losses on early retirement of debt(170) (595) (693) (6,053) 
Net gains (losses) on investments29,178  3,148  (4,891) 5,837  
Net gains of consolidated funds  482    4,228  
Total Other Income (Loss)29,008  8,397  (5,306) 9,374  

Loss Before Income Taxes(82,513) (3,838) (145,506) (9,433) 
Income taxes(17,400) 10,134  (27,368) 13,520  
Consolidated and Comprehensive Net Loss(65,113) (13,972) (118,138) (22,953) 
Less: Net loss attributable to noncontrolling interests41,860  7,984  67,945  15,218  
Less: Net income attributable to redeemable noncontrolling interests  (2,637)   (8,171) 
Net Loss Attributable to Sculptor Capital Management, Inc.(23,253) (8,625) (50,193) (15,906) 
Change in redemption value of Preferred Units(1,986)   (3,313) 44,364  
Net (Loss) Income Attributable to Class A Shareholders$(25,239) $(8,625) $(53,506) $28,458  
(Loss) Earnings per Class A Share    
(Loss) Earnings per Class A Share - basic$(1.12) $(0.42) $(2.38) $1.38  
(Loss) Earnings per Class A Share - diluted$(1.77) $(0.46) $(3.04) $1.10  
Weighted-average Class A Shares outstanding - basic22,590,084  20,722,510  22,447,399  20,599,616  
Weighted-average Class A Shares outstanding - diluted38,609,590  36,714,012  38,464,470  25,942,105  

See notes to consolidated financial statements.
6


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

Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(dollars in thousands)
Number of Class A Shares
Beginning balance
21,946,639  20,484,430  21,284,945  19,905,126  
Equity-based compensation
364,793  147,320  1,026,487  726,624  
Ending Balance
22,311,432  20,631,750  22,311,432  20,631,750  
Number of Class B Shares
Beginning balance
32,845,414  29,208,952  29,208,952  29,458,948  
Equity-based compensation
(25,000)   3,611,462  (249,996) 
Ending Balance
32,820,414  29,208,952  32,820,414  29,208,952  
Class A Shares Par Value
Beginning balance
$219  $  $213  $  
Equity-based compensation
4  1  10  1  
Reclassification upon corporate conversion
  205    205  
Ending Balance
$223  $206  $223  $206  
Class B Shares Par Value
Beginning balance
$328  $  $292  $  
Equity-based compensation
    36    
Reclassification upon corporate conversion
  292    292  
Ending Balance
$328  $292  $328  $292  
Additional Paid-in Capital
Beginning balance
$130,968  $3,235,728  $117,936  $3,135,841  
Dividend equivalents on Class A restricted share units  (61) 875  478  
Equity-based compensation, net of taxes13,306  20,618  26,790  40,318  
Reclassification upon corporate conversion  (3,235,728)   (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    50,318  
Change in redemption value of Preferred Units (1,986)   (3,313) 44,364  
Ending Balance
$142,288  $70,875  $142,288  $70,875  
7


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

Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
(dollars in thousands)
Accumulated Deficit
Beginning balance
$(383,187) $(3,577,250) $(343,759) $(3,564,727) 
Cash dividends declared on Class A Shares  (7,621) (11,613) (12,324) 
Dividend equivalents on Class A restricted share units  61  (875) (478) 
Reclassification upon corporate conversion  3,235,231    3,235,231  
Comprehensive net loss, excluding amounts attributable to redeemable noncontrolling interests(23,253) (8,625) (50,193) (15,906) 
Ending Balance
$(406,440) $(358,204) $(406,440) $(358,204) 
Shareholders’ Deficit Attributable to Class A Shareholders
$(263,601) $(286,831) $(263,601) $(286,831) 
Shareholders’ Equity Attributable to Noncontrolling Interests
Beginning balance
$425,768  $444,837  $440,779  $419,431  
Capital contributions2,059  191  3,549  618  
Capital distributions(2,962) (342) (3,248) (627) 
Equity-based compensation, net of taxes3,681  17,190  13,551  31,608  
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 loss, excluding amounts attributable to redeemable noncontrolling interests(41,860) (7,984) (67,945) (15,218) 
Ending Balance
$386,686  $453,892  $386,686  $453,892  
Total Shareholders’ Equity$123,085  $167,061  $123,085  $167,061  
Cash dividends paid on Class A Shares$  $0.37  $0.53  $0.60  

See notes to consolidated financial statements.
8


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




 Six Months Ended June 30,
 20202019
 (dollars in thousands)
Cash Flows from Operating Activities  
Consolidated net loss$(118,138) $(22,953) 
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:  
Amortization of equity-based compensation42,370  74,318  
Depreciation, amortization and net gains and losses on fixed assets3,606  4,775  
Net losses on early retirement of debt693  6,053  
Deferred income taxes(30,726) 10,373  
Non-cash lease expense10,656  10,618  
Net losses (gains) on investments, net of dividends6,565  (4,843) 
Operating cash flows due to changes in:  
Income and fees receivable142,291  31,498  
Due from related parties(5,080) 2,013  
Other assets, net6,391  779  
Compensation payable(143,037) (63,288) 
Unearned incentive income3,810  4,911  
Due to related parties(17,397) (4,491) 
Operating lease liabilities(11,900) (7,513) 
Other liabilities110,572  (19,886) 
Consolidated funds related items:  
Net gains of consolidated funds  (4,228) 
Purchases of investments  (99,407) 
Proceeds from sale of investments  176,284  
Other assets of consolidated funds  (57,639) 
Other liabilities of consolidated funds19  5,695  
Net Cash Provided by Operating Activities695  43,069  
Cash Flows from Investing Activities  
Purchases of fixed assets(984) (720) 
Purchases of United States government obligations(224,525) (161,066) 
Maturities and sales of United States government obligations165,218  175,029  
Investments in funds(11,620) (59,210) 
Return of investments in funds4,202  35,756  
Net Cash Used in Investing Activities(67,709) (10,211) 
9


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

 Six Months Ended June 30,
 20202019
 (dollars in thousands)
Cash Flows from Financing Activities  
Contributions from noncontrolling and redeemable noncontrolling interests3,549  4,263  
Distributions to noncontrolling and redeemable noncontrolling interests(3,248) (16,462) 
Dividends on Class A Shares(11,613) (12,324) 
Proceeds from debt obligations, net of issuance costs2,746    
Repayment of debt obligations, including prepayment costs(36,667) (166,068) 
Proceeds from securities sold under agreements to repurchase, net of issuance costs  16,328  
Other, net(952) (2,329) 
Net Cash Used in Financing Activities(46,185) (176,592) 
Net change in cash and cash equivalents and restricted cash(113,199) (143,734) 
Cash and cash equivalents and restricted cash, beginning of period245,439  323,884  
Cash and Cash Equivalents and Restricted Cash, End of Period$132,240  $180,150  
Supplemental Disclosure of Cash Flow Information  
Cash paid during the period:  
Interest$7,099  $7,696  
Income taxes$4,771  $3,373  
Non-cash transactions:  
Increase in paid-in capital as a result of tax receivable agreement amendment$  $50,318  
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents$127,702  $174,743  
Restricted cash4,538  5,407  
Total Cash and Cash Equivalents and Restricted Cash$132,240  $180,150  

See notes to consolidated financial statements.
10


SCULPTOR CAPITAL MANAGEMENT, INC. — UNAUDITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 half of 2020, a novel strain of coronavirus (“COVID-19”) spread across the world resulting in a wide-spread economic downturn. As a result, in the first quarter of 2020, the Company’s funds experienced significant performance-related depreciation, which had a negative impact on the Company’s incentive income during the first quarter of 2020. In the second quarter of 2020, the Company generated stronger returns across the majority of its strategies and positions that offset the majority of the first quarter losses. To the extent that the Company has performance-related depreciation at year-end, it could 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 half of 2020, the Company experienced unrealized losses on its risk retention investments held in certain of the CLOs that it manages. While the Company is required to hold these investments for the entire duration of the CLOs, to the extent that cash flows in the CLOs deteriorate, 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
11


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

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, the impacted CLOs failed to satisfy one or more overcollateralization tests, and as a result the Company stopped recognizing management fees for these CLOs until the collateral tests are remedied and such fees are paid. In the event the persistent market conditions do not sufficiently recover over the life cycle of these CLOs, the Company’s management fees from our securitization vehicles will continue to deteriorate.
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 June 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 June 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.
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
12


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

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 i