SOMNIGROUP INTERNATIONAL INC.SGI
SOMNIGROUP INTERNATIONAL INC. Income Taxes Disclosure
Income Taxes
Pre-tax Income by Jurisdiction
The following sets forth the amount of income before income taxes attributable to each of the Company's geographies for the years ended December 31, 2025, 2024 and 2023:
| Year Ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Income before income taxes: | |||||||||||||||||
| United States | $ | 245.1 | $ | 279.2 | $ | 288.5 | |||||||||||
| Rest of the world | 235.9 | 225.1 | 185.6 | ||||||||||||||
| $ | 481.0 | $ | 504.3 | $ | 474.1 | ||||||||||||
Reconciliation of Statutory Tax Rate to Effective Tax Rate
The table below provides the updated requirements of ASU 2023-09 for 2025. For additional details on the adoption of ASU 2023-09, see Note 1, "Summary of Significant Accounting Policies - Recent Accounting Pronouncements," in our Consolidated Financial Statements included in Part II, ITEM 8 of this report.
The Company's effective income tax provision differs from the amount calculated using the statutory U.S. federal income tax rate, principally due to the following:
| Year Ended December 31, | ||||||||||||||
| 2025 | ||||||||||||||
| (in millions, except percentages) | Amount | Percentage of Income Before Income Taxes | ||||||||||||
| Statutory U.S. federal income tax | $ | 101.0 | 21.0 | % | ||||||||||
State income taxes, net of federal benefit (1) | 12.1 | 2.5 | % | |||||||||||
| Foreign tax effects | 9.7 | 2.0 | % | |||||||||||
| Effect of cross-border tax laws | (1.0) | (0.2) | % | |||||||||||
| Changes in valuation allowances | (0.9) | (0.2) | % | |||||||||||
| Non-taxable or non-deductible items: | ||||||||||||||
| Stock compensation | (29.1) | (6.0) | % | |||||||||||
| Non-deductible compensation | 13.2 | 2.7 | % | |||||||||||
| Other | (5.3) | (1.1) | % | |||||||||||
| Changes in unrecognized tax benefits | (4.0) | (0.8) | % | |||||||||||
| Effective income tax provision | $ | 95.7 | 19.9 | % | ||||||||||
(1) During the year ended December 31, 2025, state taxes in Florida, Georgia, Maryland and Texas contributed to the majority (greater than 50%) of the tax effect in this category. | ||||||||||||||
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| (in millions, except percentages) | Amount | Percentage of Income Before Income Taxes | Amount | Percentage of Income Before Income Taxes | ||||||||||||||||||||||
| Statutory U.S. federal income tax | $ | 105.9 | 21.0 | % | $ | 99.6 | 21.0 | % | ||||||||||||||||||
| State income taxes, net of federal benefit | 12.8 | 2.5 | % | 9.1 | 1.9 | % | ||||||||||||||||||||
| Foreign tax differential | 8.0 | 1.6 | % | 5.8 | 1.2 | % | ||||||||||||||||||||
| Change in valuation allowances | (0.9) | (0.2) | % | 6.4 | 1.4 | % | ||||||||||||||||||||
| Uncertain tax positions and interest | (3.0) | (0.6) | % | (0.8) | (0.2) | % | ||||||||||||||||||||
Global Intangible Low-Taxed Income ("GILTI") | 2.0 | 0.4 | % | 2.7 | 0.6 | % | ||||||||||||||||||||
Expiration of foreign tax credits | — | — | % | 10.6 | 2.2 | % | ||||||||||||||||||||
| Stock compensation | (9.6) | (1.9) | % | (7.8) | (1.6) | % | ||||||||||||||||||||
| Non-deductible compensation | 15.1 | 3.0 | % | 12.7 | 2.7 | % | ||||||||||||||||||||
| Danish Tax Matter | — | — | % | (13.7) | (2.9) | % | ||||||||||||||||||||
| Notional interest deduction | (2.2) | (0.4) | % | (14.0) | (3.0) | % | ||||||||||||||||||||
| Permanent and other | (9.5) | (1.9) | % | (7.2) | (1.5) | % | ||||||||||||||||||||
| Effective income tax provision | $ | 118.6 | 23.5 | % | $ | 103.4 | 21.8 | % | ||||||||||||||||||
Income Tax Provision
The income tax provision consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current provision | |||||||||||||||||
| Federal | $ | 5.1 | $ | 71.4 | $ | 47.2 | |||||||||||
| State | 9.5 | 19.5 | 15.9 | ||||||||||||||
| Foreign | 55.3 | 46.9 | 32.0 | ||||||||||||||
| Total current | $ | 69.9 | $ | 137.8 | $ | 95.1 | |||||||||||
| Deferred provision | |||||||||||||||||
| Federal | $ | 18.2 | $ | (16.3) | $ | 6.3 | |||||||||||
| State | 5.9 | (3.2) | 2.0 | ||||||||||||||
| Foreign | 1.7 | 0.3 | — | ||||||||||||||
| Total deferred | 25.8 | (19.2) | 8.3 | ||||||||||||||
| Total income tax provision | $ | 95.7 | $ | 118.6 | $ | 103.4 | |||||||||||
The income tax provision includes federal, state and foreign income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities.
Income Tax Payments
Disclosed below is a summary of income taxes paid or (refunded) by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025:
| (in millions) | December 31, 2025 | |||||||
| United States - federal | $ | (24.5) | ||||||
| United States - state and local other | 9.7 | |||||||
| United States - California | 2.7 | |||||||
| Denmark | 17.8 | |||||||
| United Kingdom | 17.3 | |||||||
| Mexico | 5.6 | |||||||
| Canada | 5.2 | |||||||
| Germany | 2.0 | |||||||
| Foreign other | 5.6 | |||||||
| Total | $ | 41.4 | ||||||
Disclosed below is a summary of income taxes paid by jurisdiction for the years ended December 31, 2024 and 2023:
| December 31, | ||||||||||||||
| (in millions) | 2024 | 2023 | ||||||||||||
| Federal | $ | 77.8 | $ | 79.0 | ||||||||||
| State and local | 19.6 | 15.8 | ||||||||||||
| Foreign | 36.6 | 38.2 | ||||||||||||
| Total | $ | 134.0 | $ | 133.0 | ||||||||||
Deferred Income Tax Assets and Liabilities
The net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate applicable to each period in which those items will reverse, consist of the following:
| December 31, | |||||||||||
| (in millions) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Stock-based compensation | $ | 17.7 | $ | 22.9 | |||||||
| Operating lease obligations | 504.1 | 169.2 | |||||||||
| Accrued expenses and other | 77.7 | 61.1 | |||||||||
| Interest expense carryforward | 177.5 | — | |||||||||
| Net operating losses, foreign tax credits and other tax attribute carryforwards | 128.7 | 44.5 | |||||||||
| Inventories | 20.9 | 16.6 | |||||||||
| Transaction costs | 53.5 | 26.9 | |||||||||
| Property, plant and equipment | 15.7 | 6.8 | |||||||||
| Total deferred tax assets | 995.8 | 348.0 | |||||||||
| Valuation allowances | (48.7) | (48.1) | |||||||||
| Total net deferred tax assets | $ | 947.1 | $ | 299.9 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | $ | (643.7) | $ | (171.1) | |||||||
| Operating lease right-of-use assets | (471.8) | (153.0) | |||||||||
| Stock basis recapture | (335.8) | — | |||||||||
| Property, plant and equipment | (61.2) | (49.2) | |||||||||
| Accrued expenses and other | (41.0) | (19.6) | |||||||||
| Total deferred tax liabilities | (1,553.5) | (392.9) | |||||||||
| Net deferred tax liabilities | $ | (606.4) | $ | (93.0) | |||||||
The Company’s overall increase in its net deferred tax liabilities is primarily due to its acquisition of Mattress Firm on February 5, 2025. Significant deferred tax assets increased for acquired lease liabilities, federal and state net operating losses, interest expense carryforwards and other tax attributes. Additionally, significant deferred tax liabilities increased for acquired lease assets, intangible assets and stock basis recapture stemming from Mattress Firm’s 2018 debt restructuring. The stock basis recapture and the majority of the intangible asset deferred tax liabilities are indefinite-lived in nature.
Tax Attributes Included in Deferred Tax Assets
Included in the calculation of the Company's deferred tax assets are the following gross income tax attributes available at December 31, 2025 and 2024, respectively:
| (in millions) | 2025 | 2024 | |||||||||
| U.S. federal net operating losses ("FedNOLs") | $ | 157.5 | $ | — | |||||||
| State net operating losses ("SNOLs") | 3,511.7 | 103.4 | |||||||||
| Foreign net operating losses ("FNOLs") | 31.6 | 45.8 | |||||||||
| U.S. state income tax credits ("SITCs") | 2.4 | 2.8 | |||||||||
| Notional interest deduction ("NID") | 46.3 | 46.3 | |||||||||
| State charitable contribution carryover ("SCCCs") | 0.6 | 0.6 | |||||||||
The FedNOLs, SNOLs, FNOLs, SITCs and SCCCs generally begin to expire in 2032, 2026, 2026, 2031 and 2026, respectively.
Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of certain of the FedNOLs, SNOLs, FNOLs, SITCs, NID, the SCCCs and certain other deferred tax assets related to certain foreign operations (together, the "Tax Attributes"). The Company has established a valuation allowance for certain deferred tax assets (including the Tax Attributes) where it is more likely than not such deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible or creditable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making its assessment regarding the recoverability of its deferred tax assets. The Company has recorded valuation allowances against $1,457.4 million of the SNOLs, $14.6 million of FNOLs, $46.3 million of the NID and $0.6 million of the SCCCs as of December 31, 2025. With respect to all other Tax Attributes above, based upon the level of historical taxable income and projections for future taxable income, management believes it is more likely than not the Company will realize the benefits of the underlying deferred tax assets. However, there can be no assurance that such assets will be realized if circumstances change.
Deferred Tax Liability for Undistributed Foreign Earnings
As it relates to the book to tax basis difference with respect to the stock of each of the Company's foreign subsidiaries, at December 31, 2025, the Company has accrued approximately $2.9 million and $1.4 million, respectively, for income and withholding taxes.
Uncertain Income Tax Positions
GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the largest amount of benefit that has a greater than 50.0% likelihood of being realized. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. Uncertain income tax liabilities reflect the Company's best judgment of the facts, circumstances and information available through December 31, 2025. Uncertain income tax liabilities are derived using the cumulative probability approach and applying the tax technical requirements applicable to U.S. and other international tax and transfer pricing requirements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (in millions) | |||||
Balance as of December 31, 2023 | $ | 4.5 | |||
| Additions for tax positions of prior years | 0.2 | ||||
| Expiration of statutes of limitations | (2.6) | ||||
Balance as of December 31, 2024 | $ | 2.1 | |||
Additions based on tax positions related to 2025 | 11.5 | ||||
| Additions for tax positions of prior years | 22.5 | ||||
| Expiration of statutes of limitations | (5.0) | ||||
| Reduction for tax positions of prior years | (0.4) | ||||
Balance as of December 31, 2025 | $ | 30.7 | |||
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at December 31, 2025 and 2024 would be $30.7 million and $2.1 million, respectively. The increase in the additions for tax positions for prior years is primarily related to positions acquired during 2025. During the years ended December 31, 2025 and 2024, the Company recognized $1.2 million and $0.7 million in interest and penalties as a benefit in the income tax provision, respectively. The Company had $1.4 million and $0.3 million of accrued interest and penalties at December 31, 2025 and 2024, respectively.
With few exceptions, the Company is no longer subject to tax examinations by the U.S., state and local municipalities or non-U.S. jurisdictions for periods prior to 2020. The Company is currently under examination by various tax authorities around the world.
The OECD (Organization for Economic Co-operation and Development) has proposed a global minimum effective tax of 15.0% on income arising in each jurisdiction ("Pillar 2") that has been agreed upon in principle by over 140 countries. During 2024 and 2023, many countries took steps to incorporate Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2. The Company does not expect Pillar 2 to have a material impact on its financial results.
On July 4, 2025, the Tax Act was signed into law. While the Tax Act has multiple provisions that are expected to impact the Company, guidance on the potentially relevant provisions is forthcoming. As such, the Company will continue to evaluate the impact as further information becomes available.
The Danish Tax Matter
The Company was involved in a dispute with the Danish tax authority ("SKAT") regarding the royalty paid by a U.S. subsidiary to a Danish subsidiary for tax years 2012 through 2022. The issues involved the royalty paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process. For Danish income tax purposes, the matter was fully resolved prior to 2024.
From the U.S. income tax perspective, the final resolution of the matter resulted in refundable U.S. income tax of approximately $31.1 million which was recorded as an income tax receivable at December 31, 2024. Such income tax receivable was received by the Company on April 15, 2025. As such, there is no U.S. income tax receivable at December 31, 2025 related to this issue.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 17, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 19, 2021 | |
| 2019 | Feb 24, 2020 | |
| 2018 | Feb 25, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 12, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.