CTS CORP Income Taxes Disclosure

NOTE 19 — Income Taxes

At each reporting date, we weigh all available positive and negative evidence to assess whether it is more-likely-than-not that the Company's deferred tax assets, including deferred tax assets associated with accumulated loss carry-forwards and tax credits in the various jurisdictions in which it operates, will be realized. As of December 31, 2025 and 2024, we recorded deferred tax assets related to certain U.S. state and non-U.S. income tax loss carry-forwards of $2,007 and $2,378, respectively, and U.S. and non-U.S. tax credits of $18,088 and $15,205, respectively. The deferred tax assets expire in various years primarily between 2026 and 2045.

Generally, we assess if it is more-likely-than-not that our net deferred tax assets will be realized during the available carry-forward periods. As a result, we have determined that valuation allowances of $6,593 and $5,592 should be provided for certain deferred tax assets at December 31, 2025 and 2024, respectively. As of December 31, 2025, the valuation allowances relate to certain U.S. state and non-U.S. loss carry-forwards and certain U.S. state tax credits that management does not anticipate will be utilized.

A valuation allowance for 2025 and 2024 of $158 and $157 was recorded against the U.S. federal foreign tax credit carry-forwards of $3,676 and $2,447, respectively. These credits begin to expire in varying amounts between 2031 and 2035. A valuation allowance for 2025 and 2024 of $947 and $275 was recorded against the U.S. federal research and development tax credits of $10,386 and $9,914, respectively. These credits begin to expire in varying amounts between 2026 and 2045. We assessed the anticipated realization of those tax credits utilizing future taxable income projections. Based on those projections, management believes it is more-likely-than-not that we will realize the benefits of these tax credit carry-forwards.

Under current U.S. tax regulations, in general, repatriation of foreign earnings to the U.S. can be completed with no incremental U.S. tax. However, there are limited other taxes that continue to apply such as foreign withholding and certain state taxes. The Company records a deferred tax liability for the estimated foreign earnings and state tax cost associated with the undistributed foreign earnings that are not permanently reinvested.

In accordance with guidance issued by the FASB staff, the Company has adopted an accounting policy to treat any Global Intangible Low-Taxed Income inclusions as an expense in the period the tax was incurred.

We recognize the financial statement benefit of a tax position when it is more-likely-than-not, based on its technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not threshold is then measured to determine the amount of benefit to be recognized in the financial statements. As of December 31, 2025, we have approximately $1,951 of unrecognized tax benefits, which if recognized, would impact the effective tax rate. We anticipate reducing our unrecognized tax benefits by approximately $468 in the next 12 months.

The One Big Beautiful Bill Act (the "OBBBA") was signed into law on July 4, 2025. The OBBBA contains significant tax law changes with various effective dates after its enactment date and made permanent the expiring tax provisions of the 2017 Tax Cuts and Jobs Act. The OBBBA also includes changes to the taxation of foreign derived intangible income, global intangible low-taxed income, interest expense, and research & developmental expenses. The impacts of these changes are reflected in the tax expense for 2025, resulting in a provisional non-cash charge of approximately $979.

Our continuing practice is to recognize interest and/or penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2025 and 2024, $39 and $39, respectively, of interest and penalties were accrued.

We are subject to taxation in the U.S., various states, and in non-U.S. jurisdictions. Our U.S. income tax returns are primarily subject to examination from 2021 through 2024; however, U.S. tax authorities also have the ability to review prior tax years to the extent loss carry-forwards and tax credit carry-forwards are utilized. The open years for the non-U.S. tax returns range from 2014 through 2024 based on local statutes.