Auditor’s Report

Report of Independent Registered Public Accounting Firm

To the Shareholders and Supervisory Board

QIAGEN N.V.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of QIAGEN N.V. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of (loss) income, comprehensive (loss) income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule as listed in Item 18 (A) (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification Topic 842 - Leases. In 2018, the Company has changed its method of accounting for revenue from contracts with customers due to the adoption of Accounting Standards Codification Topic 606 - Revenue from Contracts with Customers.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of certain long-lived asset impairments

As discussed in Notes 3 and 6 to the consolidated financial statements, the Company performs impairment testing for its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset or a group of assets may not be recoverable and exceeds its fair value. In the second half of 2019, the Company began a restructuring initiative as a result of the suspended development of the NGS-related instrument systems. Due to the restructuring initiative, the Company fully impaired certain long-lived assets, based on the Company’s assumption that these assets had no alternative use. The Company estimated that no value was recoverable in a market disposal and recorded impairment expenses related to the certain long-lived assets during the year ended December 31, 2019 of $138.8 million.

We identified the evaluation of the impairment analysis for certain long-lived assets associated with the restructuring initiative as a critical audit matter due to a high degree of complex auditor judgment in evaluating the Company’s assumption of related alternative uses.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s impairment assessment process for long-lived assets, including the control related to the assessment of alternative highest and best uses for these assets. For a selection of assets within the long-lived asset group, we evaluated the Company’s conclusion over their alternative uses through a combination of (1) inspecting application descriptions and uses in underlying license agreements, software documentation and other contracts, (2) inquiring with operational management and performing independent research into patents’ and other intangible assets’ potential uses outside of the Company’s other product areas, and, (3) considering the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the Company recording a full impairment charge.

Evaluation of the Formulatrix asset purchase agreement as an asset acquisition

As discussed in Notes 5 and 11 to the consolidated financial statements, on January 31, 2019, the Company acquired the digital PCR asset of Formulatrix Inc. (Formulatrix) in an asset acquisition. Consistent with other business combination type transactions, the Company determines whether an acquired entity is considered to be a business, or an asset or group of assets, including whether substantially all of the fair value of the acquired gross assets is concentrated in a single asset or group of similarly identifiable assets. The purchase price of the digital PCR asset, determined as the acquired asset in the Formulatrix acquisition, was $260.9 million, of which $125.0 million was paid upon closing.

We identified the evaluation of the Formulatrix asset purchase transaction as an asset acquisition as a critical audit matter. Complex auditor judgment and specialized skills were required to assess the Company’s determination that substantially all of the fair value of the Formulatrix assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition-date evaluation process including controls to (1) identify assets acquired and (2) assess the application of the substantially all threshold in determining the asset acquisition criterion is met. We inspected the Formulatrix asset purchase agreement, including the transaction terms and specific assets listed in the agreement, to evaluate the Company’s identification of assets acquired. We evaluated the Company’s assessment that substantially all the fair value of the assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets by inspecting the nature of these assets and comparisons to external cost and external market research studies to assess for indications of dissimilar characteristics. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the identification of the intangible assets acquired from the Formulatrix asset purchase transaction by inspecting and evaluating legal terms that would give rise to identifiable intangible assets; and
• assessing the Company’s determination of combining the Formulatrix intangible assets into a single developed technology intangible asset.

Assessment of unrecognized tax benefits

As discussed in Note 17 to the consolidated financial statements, the Company conducts its business globally and operates more than 50 consolidated subsidiaries in multiple tax jurisdictions. This multi-jurisdictional business operation involves complex intercompany operating and financing activities. The nature of these activities can result in uncertainties in the estimation of the related tax exposures. The Company initially recognizes and subsequently measures the largest amount of tax benefit in its consolidated financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. As at 31 December 2019, the Company recorded unrecognized tax benefits of $58.0 million.

We identified the assessment of unrecognized tax benefits as a critical audit matter because complex auditor judgment and specialized skills were required in evaluating the Company’s interpretation and application of tax laws in the jurisdictions where it operates and its estimate of the ultimate resolution of the tax position.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s unrecognized tax benefit process, including controls over (1) its identification and application of tax statutes and legislation, and changes thereto, in the various jurisdictions in which it operates and (2) its application in the process to estimate the associated unrecognized tax benefit. We inspected the Company’s legal composition to identify and assess changes in operating structures and financing arrangements. We inquired of the Group’s tax department in combination with inspecting correspondence with the responsible tax authorities. We involved professionals with specialized skills and knowledge, who assisted in:

• evaluating the Company’s interpretation and application of multi-jurisdictional tax laws, and changes thereto, and its impact on the unrecognized tax benefit,
• inspecting the lapse of statute of limitations and settlements with tax authorities over a selection of unrecognized tax benefits to compare the amount in the settlement documents to the unrecognized tax benefit, and
• inspecting a selection of intercompany operating and financing activities between group entities to assess the sustainability of tax positions based on their technical merits and the probabilities of possible settlement alternatives.

 

/s/ KPMG AG Wirtschaftsprüfungsgesellschaft

We have served as the Company’s auditor since 2015.

Düsseldorf, Germany

February 28, 2020