Och-Ziff Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

scu-20200930

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.	Financial Statements (Unaudited)	5

	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	5

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019	6

	Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2020 and 2019	7

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	9

	Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76

Item 4.	Controls and Procedures	77

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	79

Item 1A.	Risk Factors	79

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80

Item 3.	Defaults upon Senior Securities	80

Item 4.	Mine Safety Disclosures	80

Item 5.	Other Information	80

Item 6.	Exhibits	82

Signatures		83

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


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

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

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.

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.

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.

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	3		1		13		2
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

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.

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)

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.

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

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.

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.

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:

Price	21.53	EPS	1
Shares	28	P/E	22
MCap	606	P/FCF	14
Net Debt	176	EBIT	59
TEV	783	TEV/EBIT	13
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-09
10-Q	2020-06-30	Filed 2020-08-06
10-Q	2020-03-31	Filed 2020-05-07
10-K	2019-12-31	Filed 2020-02-24
10-Q	2019-09-30	Filed 2019-11-07
10-Q	2019-06-30	Filed 2019-08-06
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-03-15
10-Q	2018-09-30	Filed 2018-11-06
10-Q	2018-06-30	Filed 2018-08-02
10-Q	2018-03-31	Filed 2018-05-03
10-K	2017-12-31	Filed 2018-02-23
10-Q	2017-09-30	Filed 2017-11-02
10-Q	2017-06-30	Filed 2017-08-02
10-Q	2017-03-31	Filed 2017-05-02
10-K	2016-12-31	Filed 2017-03-01
10-Q	2016-09-30	Filed 2016-11-02
10-Q	2016-06-30	Filed 2016-08-02
10-Q	2016-03-31	Filed 2016-05-03
10-K	2015-12-31	Filed 2016-02-11
10-Q	2015-09-30	Filed 2015-11-03
10-Q	2015-06-30	Filed 2015-08-05
10-Q	2015-03-31	Filed 2015-05-05
10-K	2014-12-31	Filed 2015-02-24
10-Q	2014-09-30	Filed 2014-11-04
10-Q	2014-06-30	Filed 2014-08-05
10-Q	2014-03-31	Filed 2014-05-02
10-K	2013-12-31	Filed 2014-03-18
10-Q	2013-09-30	Filed 2013-11-05
10-Q	2013-06-30	Filed 2013-08-02
10-Q	2013-03-31	Filed 2013-05-02
10-K	2012-12-31	Filed 2013-02-28
10-Q	2012-09-30	Filed 2012-11-05
10-Q	2012-06-30	Filed 2012-08-02
10-Q	2012-03-31	Filed 2012-05-02
10-K	2011-12-31	Filed 2012-02-27
10-Q	2011-09-30	Filed 2011-11-02
10-Q	2011-06-30	Filed 2011-08-02
10-Q	2011-03-31	Filed 2011-05-03
10-K	2010-12-31	Filed 2011-02-28
10-Q	2010-09-30	Filed 2010-11-05
10-Q	2010-06-30	Filed 2010-08-05
10-Q	2010-03-31	Filed 2010-05-05
10-K	2009-12-31	Filed 2010-03-04

8-K	2020-11-20	Officers, Regulation FD, Exhibits
8-K	2020-11-13	Enter Agreement, Leave Agreement, Off-BS Arrangement, Officers, Regulation FD, Exhibits
8-K	2020-11-09	Earnings, Exhibits
8-K	2020-11-03	Other Events, Exhibits
8-K	2020-10-02	Other Events, Exhibits
8-K	2020-09-30	Officers, Exhibits
8-K	2020-09-25	Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K	2020-09-23	Enter Agreement, Exhibits
8-K	2020-09-02	Other Events, Exhibits
8-K	2020-08-06	Earnings, Exhibits
8-K	2020-08-04	Other Events, Exhibits
8-K	2020-07-24	Other Events, Exhibits
8-K	2020-07-02	Other Events, Exhibits
8-K	2020-06-25
8-K	2020-06-09
8-K	2020-06-02
8-K	2020-05-06
8-K	2020-05-04
8-K	2020-04-02
8-K	2020-03-03
8-K	2020-02-13
8-K	2020-02-04
8-K	2020-01-23
8-K	2020-01-03
8-K	2019-12-03
8-K	2019-11-07
8-K	2019-11-04
8-K	2019-10-03
8-K	2019-09-04
8-K	2019-08-30
8-K	2019-08-02
8-K	2019-08-02
8-K	2019-07-02
8-K	2019-07-02
8-K	2019-06-04
8-K	2019-05-13
8-K	2019-05-09
8-K	2019-05-09
8-K	2019-05-02
8-K	2019-04-29
8-K	2019-04-09
8-K	2019-04-02
8-K	2019-04-01
8-K	2019-03-07
8-K	2019-03-04
8-K	2019-02-07
8-K	2019-02-07
8-K	2019-02-06
8-K	2019-02-04
8-K	2019-01-31
8-K	2019-01-14
8-K	2019-01-03
8-K	2019-01-03
8-K	2018-12-27
8-K	2018-12-05
8-K	2018-12-04
8-K	2018-11-02
8-K	2018-11-02
8-K	2018-10-02
8-K	2018-09-05
8-K	2018-08-02
8-K	2018-08-02
8-K	2018-08-02
8-K	2018-07-03
8-K	2018-06-06
8-K	2018-06-04
8-K	2018-05-02
8-K	2018-05-02
8-K	2018-04-17
8-K	2018-04-10
8-K	2018-04-05
8-K	2018-04-03
8-K	2018-03-28
8-K	2018-03-02
8-K	2018-02-23
8-K	2018-02-16
8-K	2018-02-02
8-K	2018-01-30
8-K	2018-01-29
8-K	2018-01-04
8-K	2018-01-03

EX-10.3	exhibit103.htm
EX-31.1	scu-10xqx3q2020xex311.htm
EX-31.2	scu-10xqx3q2020xex312.htm
EX-32.1	scu-10xqx3q2020xex321.htm

OZM 10Q Quarterly Report

Och-Ziff Earnings 2020-09-30