CoStar Group (CSGP) 10-K risk factor changes: FY2015 vs FY2014

Forward-looking statements include information that is not purely historic fact and include, without limitation, statements concerning our financial outlook for [removed: 2015] [added: 2016] and beyond, our possible or assumed future results of operations generally, and other statements and information regarding assumptions about our revenues, EBITDA, adjusted EBITDA, non-generally accepted accounting principles (“GAAP”) net income, non-GAAP net income per share, net [removed: income,] [added: income (loss),] net income [added: (loss)] per share, fully diluted net income [added: (loss)] per share, weighted-average outstanding shares, taxable [removed: income,] [added: income (loss),] cash flow from operating activities, available cash, operating costs, amortization expense, intangible asset recovery, capital and other expenditures, effective tax rate, equity compensation charges, future taxable income, purchase amortization, [added: pending acquisitions,] the anticipated benefits of completed [added: or proposed] acquisitions, the anticipated benefits of cross-selling efforts, product development and release, sales and marketing campaigns, product integrations, elimination and de-emphasizing of services, contract renewal rate, the timing of future payments of principal under our $400.0 million term loan facility available to us under a credit agreement dated April 1, 2014 (the “2014 Credit Agreement”), expectations regarding our compliance with financial and restrictive covenants in the 2014 Credit Agreement, [removed: acquisitions,] financing plans, geographic expansion, capital structure, contractual obligations, legal proceedings and claims, our database, database growth, services and facilities, employee relations, future economic performance, our ability to liquidate or realize our long-term investments, management’s plans, goals and objectives for future operations, and growth and markets for our stock.

The following important factors, in addition to those discussed or referred to under the heading “Risk Factors,” and other unforeseen events or circumstances, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements: commercial real estate market conditions; [removed: the pace of recovery in the commercial real estate market;] general economic conditions; our ability to identify, acquire and integrate acquisition candidates; our ability to realize the expected benefits, cost savings or other synergies from acquisitions, including the [removed: Apartments.com acquisition,] [added: acquisitions of Apartments.com, Apartment Finder and the assets of Belbex,] on a timely basis or at all; our ability to combine acquired businesses successfully or in a timely and cost-efficient manner; business disruption relating to integration of acquired businesses or other business initiatives; the amount of investment for sales and marketing and our ability to realize a return on investments in sales and marketing; our ability to effectively and strategically combine, eliminate or de-emphasize service offerings; reductions in revenues as a result of service changes; the time and resources required to develop upgraded [added: or new] services and [added: to] expand service offerings; changes or consolidations within the commercial real estate industry; customer retention; our ability to attract new clients; our ability to sell additional services to existing clients; our ability to integrate our North America and International product offerings; our ability to successfully introduce new products or upgraded services in U.S. and foreign markets; our ability to attract consumers to our online marketplaces; [added: the success of our marketing campaigns in generating brand awareness and site traffic;] competition; foreign currency fluctuations; global credit market conditions affecting investments; our ability to continue to expand successfully, timely and in a cost-efficient manner, including internationally; our ability to effectively penetrate and gain acceptance in new sectors; our ability to control costs; litigation; changes in accounting policies or practices; release of new and upgraded services or entry into new markets by us or our competitors; data quality; expansion, growth, development [removed: and] [added: or] reorganization of our sales force; employee retention; technical problems with our services; managerial execution; changes in relationships with real estate [removed: brokers] [added: brokers, property managers] and other strategic partners; legal and regulatory issues; and successful adoption of and training on our services.

Also, companies in this industry [removed: are consolidating,] [added: may consolidate,] often in order to reduce expenses.

[removed: Large companies with] [added: Our competitors for advertisers may have] significant brand recognition [removed: have large] [added: as well as greater] numbers of direct sales personnel [added: than we have] and [added: may generate more] web [removed: traffic,] [added: traffic than we do,] which may provide a competitive advantage.

We may be unable to increase awareness of our brands, including CoStar, [removed: LoopNet or] [added: LoopNet,] Apartments.com, [added: Apartment Finder, BizBuySell and LandsofAmerica,] which could adversely affect our business.

Awareness and differentiation of our brands are important for attracting and expanding the number of users of, and subscribers to, our online marketplaces, such as [added: LoopNet, the] Apartments.com [added: network of rental websites, CoStar Showcase, LandandFarm.com] and [removed: LoopNet.com.][added: LandsofAmerica.com.]

[removed: Further, we] [added: We] expect [removed: that] [added: to continue to invest in] sales and [added: marketing, including sales and] marketing [removed: expenses] for our other brands [removed: will continue to increase] as we seek to grow the [removed: number] [added: numbers] of subscribers [removed: or] [added: to, and] advertisers [removed: to] [added: on,] our marketplaces.

[removed: Increased] [added: Our methods of] advertising may not be successful in increasing brand awareness or, ultimately, be cost-effective.

If we are unable to maintain or enhance user and advertiser awareness of our brands, or if we are unable to recover our [removed: additional] marketing and advertising costs through increased usage of our [removed: services,] [added: services and increased advertising on the Apartments.com network of rental websites,] our business, results of operations and financial condition could be adversely affected.

and other Internet search websites drive traffic to our websites, including [added: CoStar.com, the] Apartments.com [added: network of rental websites, LoopNet.com, BizBuySell.com] and [removed: LoopNet.com.][added: LandsofAmerica.com.]

[removed: We expect that our] [added: Our] marketing expenses [added: have increased and] may [added: continue to] increase in connection with our efforts to maintain or increase traffic to our websites.

We [removed: also] face competition to attract users to our marketplace websites.

Our marketplace businesses, including [added: LoopNet,] the Apartments.com [removed: Business] [added: network of rental websites, CoStar Showcase, LandandFarm.com] and [removed: LoopNet.com,] [added: LandsofAmerica.com,] depend on advertising revenue generated primarily through sales to persons in the real estate industry, including property managers and owners, and other advertisers.

Further, with respect to the Apartments.com [removed: marketplace,] [added: network of rental websites,] our ability to attract and retain advertisers also depends on the current apartment rental market and apartment vacancy rates.

In addition, acquisitions involve numerous risks, including the ability to realize or capitalize on [removed: synergy] [added: synergies] created through combinations; managing the integration of personnel and products; potential increases in operating costs; managing geographically remote operations; the diversion of management’s attention from other business concerns and potential disruptions in ongoing operations during integration; the inherent risks in entering markets and sectors in which we have either limited or no direct experience; and the potential loss of key employees, clients or vendors and other business partners of the acquired companies.

The failure to successfully integrate [removed: the] Apartments.com [removed: Business] [added: or Apartment Finder] and/or fully realize expected synergies from [removed: the acquisition] [added: those acquisitions] in the expected time [removed: frame] [added: frames] or at all may adversely affect our future results and our business.

The success of the Apartments.com [removed: acquisition will depend,] [added: and Apartment Finder acquisitions depends,] in part, on our ability to successfully integrate [removed: the Apartments.com Business] [added: those businesses] and realize the benefits and synergies we anticipate to result from the combination of our business and the [added: businesses of] Apartments.com [removed: Business,] [added: and Apartment Finder,] including anticipated growth opportunities and cost savings.

The success of the [removed: acquisition] [added: Apartments.com and Apartment Finder acquisitions] will also depend in part on our ability to minimize or eliminate any difficulties that may occur in connection with the integration of our business and [removed: the Apartments.com Business.][added: those acquired businesses.]

The integration process could result in the loss of key employees, loss of key clients, loss of key vendors and other business partners, increases in operating costs, increases in taxes, or the disruption of each company's ongoing businesses, any or all of which could adversely affect our ability to achieve the anticipated benefits and synergies of the [added: respective] acquisition.

Our efforts to integrate the [removed: two] businesses [removed: will] [added: may] divert management's attention and other resources from uses that could otherwise have been beneficial to the Company.

In addition, management may decide to combine or eliminate products or services currently offered by [removed: Apartments.com,] [added: one of the acquired businesses,] which could also result in the loss of revenues, key employees, key clients, key vendors or other business partners.

[removed: During 2015, we plan to continue to increase the depth of our coverage in the U.S., Canada and the U.K.] If we are unable to manage our expansion efforts effectively, if our expansion efforts take longer than planned or if our costs for these efforts exceed our expectations, our financial position could be adversely affected.

[removed: We recently] [added: In February 2015, we] launched the [removed: new] [added: improved] Apartments.com website [added: and in December 2015, we launched the new ApartmentFinder.com website, both] after undergoing extensive product development.

[removed: We] [added: In 2015, we] also [removed: plan to launch] [added: launched] a wide-scale marketing campaign in an effort to increase brand awareness and site [removed: traffic.][added: traffic for Apartments.com.]

The launch of the [removed: new site] [added: sites] and/or the [removed: new] marketing campaign may not result in increased brand awareness, site traffic and/or revenues.

If we are unsuccessful in obtaining greater market share, we may not be able to offset the [removed: expense] [added: expenses] associated with the new launch and marketing campaign, which could have a material adverse effect on our financial results.

For example, we [removed: are currently assessing] [added: continue to assess] whether to transition the LoopNet marketplace to a pure marketing site for commercial real estate where, eventually, all listings would be paid and users could search the site for free.

Although we are assessing the best strategy to implement this shift and will seek to convert customers to higher value, more profitable annual subscription information [removed: services to] [added: services, which should] increase revenues and earnings over time, we cannot predict with certainty whether we will be successful in shifting customers to higher value, more profitable subscriptions and, consequently, in offsetting any reduction in revenue and earnings; therefore, if we make this transition, our revenues and earnings may ultimately decline.

In addition, if we incur significant costs in developing new or upgraded services or combining and coordinating existing services, [added: we] are not successful in marketing and selling these new services or upgrades, or our customers fail to accept these new or combined and coordinating services, it could have a material adverse effect on our results of operations by decreasing our revenues and reducing our profitability.

The [removed: market] [added: markets] for information systems and services [added: and for online marketplaces] in general is highly competitive and rapidly changing.

Competition in [removed: this market] [added: these markets] may increase further if economic conditions or other circumstances cause customer bases and customer spending to decrease and service providers to compete for fewer customer resources.

Our competitors may be able to undertake more effective marketing campaigns, obtain more data, adopt more aggressive pricing policies, make more attractive offers to potential employees, subscribers, [added: advertisers,] distribution partners and content providers or may be able to respond more quickly to new or emerging technologies or changes in user requirements.

Over the past few years, we have increased the rate of investments in our business, including internal investments in product development [removed: and sales and marketing,] to expand the breadth and depth of services we provide to our [removed: customers.][added: customers and investments in sales and marketing to generate brand awareness.]

[removed: For instance,] [added: In addition,] our external investments may lose value and we may incur impairment charges with respect to such investments.

In addition, legal standards relating to the validity, enforceability and scope of protection of proprietary rights in [removed: internet related] [added: Internet-related] businesses are uncertain and evolving, and changes in these standards may adversely impact the viability or value of our proprietary rights.

[removed: In addition, we] [added: We] seek to enforce our rights against people and entities that infringe our intellectual property, including through legal action.

Our policies concerning the collection, use and disclosure of [removed: these types] [added: personally identifiable] of information are described on our websites.

Our business requires highly skilled technical, sales, management, web [added: product and] development, marketing and research personnel, who are in high demand and are often subject to competing offers.

As of December 31, [removed: 2014,] [added: 2015,] we had approximately [removed: $1.1] [added: $1.3] billion of goodwill, including [removed: $1.1] [added: $1.2] billion in our North America segment and [removed: $24.4] [added: $25.6] million in our International segment.

If we are unable to obtain or retain listings from commercial real estate brokers, agents, property owners, and apartment property managers, our commercial real estate ("CRE") marketplace services, including but not limited to LoopNet, [removed: Apartments.com,] [added: the Apartments.com network of rental websites,] CoStar Showcase, LandandFarm.com and [removed: Lands of America,] [added: LandsofAmerica.com,] could be less attractive to current or potential customers, which could reduce our revenues.

Our recent investments in sales and marketing activities to increase brand awareness and grow site traffic to the Apartments.com network of rental websites may not be successful.

We may not be able to achieve these objectives in whole or in part, achievement of the objectives may take longer than expected, or achievement of the objectives may be more costly than expected.

Our actual or perceived failure to comply with privacy laws and standards could adversely affect our business, financial condition and results of operations.

We are dependent on information technology networks and systems to process, transmit, and store electronic information and to communicate between our locations around the world and with our clients.

As a result, we are subject to a variety of state, national, foreign, and international laws and regulations that apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data.

These privacy- and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations.

Compliance with these laws and regulations can be costly and can delay or impede the development of new products.

The U.S.-EU Safe Harbor Framework, which established means for legitimizing the transfer of personal data by U.S. companies from the European Economic Area, or EEA, to the U.S., recently was invalidated by a decision of the European Court of Justice, or the ECJ.

In light of the ECJ’s decision, we have begun to undertake efforts to conform transfers of personal data from the EEA based on current regulatory obligations, the guidance of data protection authorities and evolving best practices.

We continue to review our business practices and the evolving regulations and may find it necessary or desirable to make further changes to our personal data handling or engage in additional efforts to cause our transfer and receipt of EEA residents’ personal data to be legitimized under applicable European law.

We may find it necessary to establish systems to maintain EU-origin data in the European Economic Area, which may involve substantial expense and distraction from other aspects of our business.

Despite our efforts, we may be unsuccessful in establishing legitimate means of transferring certain data from the EEA, including due to ongoing legislative activity, which may vary the current data protection landscape.

Our actual or alleged failure to comply with applicable privacy or data security laws, regulations and policies, or to protect personal data, could result in enforcement actions and significant penalties against us, which could result in negative publicity, increase our operating costs, subject us to claims or other remedies and have a material adverse effect on our business, financial condition, and results of operations.

Because the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our products.

If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products, which could harm our business.

We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States and other jurisdictions, and we cannot yet determine the impact such future laws, regulations and standards may have on our business.

Risks Related to our Business

In 2015, we expect to increase our investment in sales and marketing activities by approximately $75.0 million to increase brand awareness and grow traffic in conjunction a wide-scale marketing campaign commencing during the first quarter of 2015 and running throughout the remainder of 2015 to generate brand awareness and site traffic for the improved Apartments.com website.

We may not be able to achieve these objectives in whole or in part.

During the integration process, we will depend on CV to provide certain services to us during a transitional period, including, among others, billing and collection services.

If these services are not provided to us, we may incur additional expense to replicate or procure these services from other third parties.

Our U.S. researchers use integrated internal research processes to update our database.

Any inefficiencies, errors, or technical problems with this application could reduce the quality of our data, which could result in reduced demand for our services, lower revenues and higher costs.

If we fail to protect confidential information against security breaches, or if customers or potential customers are reluctant to use our services because of privacy concerns, we might face additional costs and could lose customers or potential customers.

Under various state laws, if there is a breach of our computer systems and we know or suspect that unencrypted personal customer data has been stolen, we are required to inform any customers whose data was stolen, which could result in significant costs and harm our reputation and business.

In addition, certain state laws require businesses that maintain personal information in electronic databases to implement reasonable measures to keep that information secure.

Various states have enacted different and sometimes contradictory requirements for protecting personal information collected and maintained electronically.

Compliance with numerous and contradictory requirements of the different states is particularly difficult for an online business such as ours which collects personal information from customers in multiple jurisdictions.

We may face adverse publicity and loss of consumer confidence if we are not able to comply with laws requiring us to take adequate measures to assure the confidentiality of the personally identifiable information that our customers have given to us.

This could result in a loss of customers and revenue that could jeopardize our success.

Even if we are in full compliance with all relevant laws and regulations, we may face liability or disruption of business if we do not comply in every instance or if the security of the customer data that we collect is compromised, regardless of whether our practices comply or not.

If we were required to pay any significant amount of money in satisfaction of claims under these laws, or if we were forced to suspend operations for any length of time due to our inability to comply fully with any such laws, our business, operating results and financial condition could be adversely affected.

We may have difficulty attracting, motivating and retaining executives and other key employees in light of the acquisition of the Apartments.com Business.

Uncertainty about the effect of the acquisition on our employees, including employees who joined the Company as a result of the acquisition of the Apartments.com Business, may have an adverse effect on the combined business.

This uncertainty may impair our ability to attract, retain and motivate key personnel.

If our key employees or Apartments.com key employees depart, we may incur costs in identifying, hiring, training and retaining replacements for departing employees, which could reduce our ability to realize the anticipated benefits of the acquisition of the Apartments.com Business.

As a result of the consolidation of certain of our facilities, we may incur additional costs.

We have taken, and may continue to take, actions that may increase our cost structure in the short-term but are intended to reduce certain portions of our long-term cost structure, such as consolidation of office space.

As a result of consolidation of office space, we may reduce our long-term occupancy costs, but incur restructuring charges.

If our long-term cost reduction efforts are ineffective or our estimates of cost savings are inaccurate, our profitability could be negatively impacted.

Expected savings from relocating facilities can be highly variable and uncertain.

Further, we may not be successful in achieving the operating efficiencies or operating cost reductions expected from these efforts in the amounts or at the times we anticipate.

U.S. political, credit and financial market conditions may negatively impact or impair the value of our current portfolio of cash, cash equivalents and investments, including U.S. Treasury securities and U.S.-backed investments, as well as our access to credit.

Our cash, cash equivalents and investments are held in a variety of common financial instruments, including U.S. treasury securities.

Deterioration in the U.S. credit and financial markets may result in losses or deterioration in the fair value of our cash, cash equivalents, or investments.

On August 5, 2011, Standard & Poor’s lowered its long term sovereign credit rating on the U.S. from AAA to AA+.

This downgrade, and any future downgrades of the U.S. credit rating, could impact the stability of future U.S. treasury auctions, affect the trading market for U.S. government securities, result in increased interest rates and impair access to credit.

These factors could negatively impact the liquidity or valuation of our current portfolio of cash, cash equivalents, and investments, which may affect our ability to fund future obligations.

Further, these factors may result in an increase in interest rates and borrowing costs and make it more difficult to obtain credit on acceptable terms, which may affect our ability to fund future obligations and increase the costs of obtaining financing for future obligations.

CoStar Group, Inc. (the “Company” or “CoStar”) is the number one provider of information, analytics and online marketplaces to the commercial real estate industry in the United States [removed: ("U.S.")] [added: (“U.S.”)] and the United Kingdom [removed: ("U.K.")] [added: (“U.K.”)] based on the fact that we offer the most comprehensive commercial real estate database available; have the largest research department in the industry; own and operate [removed: the] leading online marketplaces for commercial real estate [added: and apartment listings] in the U.S. based on the [removed: number] [added: numbers] of unique visitors [added: and site visits] per month; provide more information, analytics and marketing services than any of our competitors and believe that we generate more revenues than any of our [added: commercial real estate information] competitors.

We created and compiled our standardized platform of information, analytics and online marketplace services where [removed: members] [added: industry professionals and consumers] of [removed: the] commercial real estate and [added: apartments, and the] related business [removed: community] [added: communities,] can continuously interact and facilitate transactions by efficiently [added: accessing and] exchanging accurate and standardized [removed: commercial] real [removed: estate] [added: estate-related] information.

We have five flagship brands - [removed: CoStar, LoopNet, Apartments.com, BizBuySell] [added: CoStar®, LoopNet®, Apartments.comTM, BizBuySell®] and [removed: LandsofAmerica.][added: LandsofAmericaTM.]

We provide market research and analysis for commercial real estate investors and lenders via our CoStar Portfolio Strategy and CoStar Market Analytics service [removed: offerings,] [added: offerings;] portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service [removed: offerings, and] [added: offerings; and,] real estate and lease management solutions, including lease administration and abstraction services, through our CoStar Real Estate Manager service offerings.

[removed: LoopNet, our subsidiary, operates an] [added: Our LoopNet subscription-based] online marketplace [removed: that enables] [added: services enable] commercial property owners, landlords, and real estate agents working on their behalf to list properties for sale or for lease and to submit detailed information about property listings.

Commercial real estate agents, buyers and tenants also use LoopNet's online marketplace [added: services] to search for available property listings that meet their criteria.

Our subscription-based services consist primarily of [removed: similar] [added: information, analytics and online marketplace] services offered over the Internet to commercial real estate industry and related professionals.

To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based [removed: information] services rather than charging fees based on actual system [removed: usage.][added: usage or number of paid clicks.]

[removed: Contract] [added: Depending on the type of service, contract] rates are generally based on the number of sites, number of users, organization size, the client's business focus, [removed: geography and] [added: geography,] the number and types of services to which a client [removed: subscribes.][added: subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results.]

As of December 31, [removed: 2013] [added: 2014] and [removed: 2014,] [added: 2015,] our annualized net new sales of subscription-based services on annual contracts were approximately [removed: $15.8] [added: $17.3] million and [removed: $17.3] [added: $29.2] million, respectively, calculated based on the annualized amount of change in our sales resulting from new annual subscription-based contracts or upsales on existing annual subscription-based contracts, less write downs and cancellations, for the period reported.

For the twelve months ended December 31, [removed: 2013] [added: 2014] and [removed: 2014,] [added: 2015,] our contract renewal rate for existing CoStar subscription-based services was approximately [removed: 93%] [added: 92%] and [removed: 92%,] [added: 90%,] respectively, and therefore our cancellation rate for those services was approximately [removed: 7%] [added: 8%] and [removed: 8%,] [added: 10%,] respectively, for the same time periods.

On April 1, 2014 (the “Closing Date”), we increased our presence in the multifamily vertical by acquiring [added: from Classified Ventures, LLC (“CV”), certain assets and assuming certain liabilities, in each case, related to] the Apartments.com [removed: Business,] [added: business (collectively referred to as “Apartments.com”),] a national online apartment rentals resource for renters, property managers and owners.

[removed: We] [added: On April 1, 2014, we] purchased from CV [removed: the Apartments.com Business] [added: certain assets and assumed certain liabilities, in each case, related to Apartments.com,] for $584.2 million in cash, after taking into account [added: closing date] net working capital adjustments.

Apartments.com offers renters a database of apartment listings and provides professional property management companies and landlords [removed: with] an advertising destination.

[removed: Apartments.com draws on CoStar’s multifamily database, which contains detailed information on apartment properties, and a research effort to document the apartment industry in the U.S. CoStar] [added: We] designed the [removed: new] [added: improved] Apartments.com website, which was launched in February 2015, [removed: around the needs of the renter in order] to [added: meet renter preferences and demands, which we believe will] drive traffic to the site and attract advertisers who prefer to advertise on heavily trafficked apartment websites.

The [removed: newly launched] site provides a comprehensive selection of rentals, information on actual availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history, schools and other [added: facts] important [removed: facts.][added: to renters.]

To help renters find the information that meets their needs, the [removed: new] site also offers innovative search [removed: tools.][added: tools such as the PolygonTM Search, which allows renters to specifically define the area in which they want to find an apartment, and Plan Commute tools, which allows renters to search property listings that meet their transportation needs.]

We have incurred and plan to continue to incur product development costs to improve the online Apartments.com [removed: platform,] and [removed: we plan to increase our sales and marketing expenses in order to support the Apartments.com Business and to increase brand awareness.][added: ApartmentFinder.com platforms.]

In conjunction with the launch of the [removed: new] [added: improved] Apartments.com website, we [removed: plan to embark] [added: embarked] on a wide-scale marketing campaign [removed: commencing during the first quarter of 2015 and running throughout the remainder of] [added: in] 2015 to generate brand awareness and site traffic for [removed: Apartments.com, including an incremental investment of $75.0 million above Apartments.com’s 2014 annualized marketing spend since the close of the acquisition of the Apartments.com Business.][added: Apartments.com.]

The marketing campaign [removed: is expected to feature] [added: featured] television and radio advertising, online/digital advertising, social media and out-of-home ads and [removed: will be] [added: was] reinforced by Search Engine Marketing.

[removed: Expansion and] Development [added: and Expansion]

We expect to continue our software development efforts to improve existing services, introduce new services, integrate products and services, cross-sell existing services, and expand and develop supporting technologies for our [removed: research,] [added: research and] sales and marketing organizations.

The launch of the [removed: new] [added: improved] Apartments.com website in February 2015 [removed: is one example] [added: and the new ApartmentFinder.com website in December 2015 are examples] of our software development efforts to improve existing services, introduce new services, integrate products and services, and cross-sell existing services.

We believe the improved [removed: site,] [added: sites,] enhanced search capabilities, [removed: and] [added: availability of information regarding] real-time [removed: vacancies] [added: vacancies, and our continued development and introduction of enhancements to our online apartment rental marketplaces] will [removed: draw] [added: attract] more consumers, making [removed: the service] [added: these sites] more [removed: valuable] [added: attractive] to property [removed: managers and increasing] [added: managers, which will increase our] cross-selling opportunities.

[removed: Another example is our introduction in October 2013 of technology enhancements to] CoStar [removed: Suite, our] [added: Suite is sold as a] platform of service offerings consisting of CoStar Property [removed: Professional,] [added: Professional®,] CoStar COMPS [removed: Professional] [added: Professional®] and CoStar [removed: Tenant.][added: Tenant® and through our mobile application, CoStarGo®.]

We believe [removed: this] greater functionality [removed: will make] [added: makes] our services valuable to an even broader audience and [removed: help] [added: helps] us increase sales of our services to brokers, banks, owners and institutional investors.

[removed: These] [added: We expect] technology enhancements [removed: are expected] to drive continued revenue growth in [removed: 2015] [added: 2016] and for the foreseeable future.

In the event that we eliminate or phase out [added: particular] service offerings, we may experience reduced revenues and earnings.

[removed: For example,] [added: Further,] we [removed: are currently assessing] [added: continue to assess] whether to transition the LoopNet marketplace to a pure marketing site for commercial real estate where, eventually, all listings would be paid and users could search the site for free.

[removed: Although we are assessing the best strategy to implement this shift and will seek to convert customers to higher value, more profitable annual subscription information services to increase revenues and earnings over time,] [added: However,] we cannot predict with certainty the amount or timing of any reductions in revenues and earnings or subsequent increases in revenues and earnings, if any, resulting from [added: any] eliminations or phasing out of the LoopNet information services or any other service offering, if implemented.

We expect to continue to [removed: achieve revenue synergies from acquisitions] [added: increase revenues] as a result of [added: such] cross-selling opportunities.

We may incur increased expenses in connection with any [removed: related] marketing and sales campaigns involving cross-selling opportunities and [removed: initiatives] [added: initiatives,] and in connection with promotion of our new services and brands.

We [removed: recently expanded] [added: are expanding] the geographic reach of our North America services.

Building on our experience in Toronto, we [removed: plan] [added: have expanded and are continuing] to expand our research into additional Canadian cities.

We expect these investments to result in further penetration of our subscription-based [removed: information] services and the successful cross-selling of our services to customers in existing markets.

We are also investing in our research capacity to support continued growth of our information and analytics offerings, to support [removed: the] Apartments.com [removed: Business] and [added: Apartment Finder,] to expand into additional Canadian [removed: markets.][added: markets and to provide services in Madrid, Spain.]

[removed: Therefore, while we expect current service offerings to remain profitable, driving overall earnings in 2015 and providing substantial cash flow for our business, it is possible that any] [added: Any] new investments, changes to our service offerings or other unforeseen events could cause us to generate losses and negative cash flow from operations in the future.

[removed: Further,] [added: Any development efforts must comply with] our credit [removed: facilities contain] [added: facility, which contains] restrictive covenants that restrict our operations and use of our cash [removed: flow, which] [added: flow and] may prevent us from taking certain actions that we believe could increase our profitability or otherwise enhance our business.

Grants of equity awards may vest over time or based on achievement of pre-approved performance conditions [removed: or] [added: and] market conditions.

In February 2014, the Compensation Committee [removed: (the “Committee”)] of our Board of Directors approved grants of restricted common stock to our executive officers that vest based on our achievement of a three-year cumulative revenue goal established at the grant date, and are subject to forfeiture in the event the foregoing performance condition is not met by December 31, [removed: 2016.These grants of restricted common stock are also subject to continuing employment requirements and a market condition based on total shareholder return (“TSR”).][added: 2016.]

Apartments.com is part of our network of apartment marketing sites, which also includes ApartmentFinder.comTM and ApartmentHomeLiving.com.

Our apartment marketing network of subscription-based services offers renters a searchable database of apartment listings and provides professional property management companies and landlords with an advertising destination.

Through an exclusive agreement with Move, Inc., a subsidiary of News Corp., Apartments.com is also the exclusive third-party provider of apartment community listings across Move’s family of websites, which include realtor.com®, doorsteps.com and move.com.

Our BizBuySell services, which includes BizQuest®, provide an online marketplace for operating businesses for sale.

Our LandsofAmerica services, which includes LandAndFarm, provide an online marketplace for rural lands for sale.

Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals.

The recent decrease in our contract renewal rate is related to the execution of annual contracts by many of our LoopNet customers, who historically have not signed long term agreements and typically have a lower renewal rate than the rest of our subscription-based customers.

Apartment Rental Marketplaces

Apartments.com draws on CoStar’s multifamily database, which contains detailed information on apartment properties.

To further support our expansion into the multifamily vertical, on June 1, 2015, we acquired Network Communications, Inc. (“NCI”), including its Apartment Finder business (collectively referred to as “Apartment Finder”).

Apartment Finder provides lead generation, advertising, and Internet marketing solutions to property managers and owners through its main service, ApartmentFinder.com.

Similar to Apartments.com, we developed technology to allow ApartmentFinder.com to draw on CoStar’s multifamily database.

In December 2015, we launched the new ApartmentFinder.com website to meet renter preferences and demands, which we believe will drive traffic to the site and attract advertisers who prefer to advertise on heavily trafficked apartment websites.

We also have phased out print advertising from Apartment Finder and moved to an all-digital offering.

In 2015, we entered into an agreement to be the exclusive third party provider of apartment community listings on the websites owned and operated by News Corp. subsidiary Move, Inc.- realtor.com®, move.com, and doorsteps.com - with advertiser content from Apartments.com and ApartmentFinder.com.

Through this agreement, we are able to promote the apartment communities of our advertisers across six major apartment and real estate rental websites, increasing traffic across our network of apartment marketing websites, and in turn increasing the lead flow to our advertisers’ communities.

Similar to our other past acquisitions, we have been, and plan to continue, integrating, further developing and cross-selling the services offered by Apartments.com and ApartmentFinder.com and the other services we offer, including but not limited to CoStar Market Analytics.

We have increased our sales and marketing expenses in order to support Apartments.com and to increase brand awareness.

We also increased our Search Engine Marketing to support Apartment Finder.

In 2016, we ran a Super Bowl ad to continue to generate brand awareness and site traffic for Apartments.com.

We expect to continue to invest in sales and marketing in 2016.

As we continue to assess the success and effectiveness of our marketing campaign, we will also seek to determine the optimal level of marketing investment in the future.

Our software development initiatives in 2015 included enhancing our new CoStar Lease Analysis® integrated workflow tool to provide users a simple way to produce understandable cash flows for leases, and to enhance other lease comparable services.

For example, we recently eliminated certain Apartment Finder services and phased out Apartment Finder print advertising and moved to an all-digital offering.

We expect a short-term reduction in revenues and associated costs resulting from the elimination of these Apartment Finder services.

Additionally, we are working to integrate the backend systems of the LoopNet and CoStar databases, so that the two services will share a unified database of information in order to create efficiencies in operations and improved data for our customers.

We also hope to increase the quantity and quality of the listing information available by enabling select brokers and other industry participants to load information directly into the integrated system, simultaneously reducing the time and costs associated with researching and maintaining our comprehensive database of commercial real estate information.

If and when we implement such a shift, we will seek to convert LoopNet marketplace customers to higher value, more profitable annual subscription information services, which should increase revenues and earnings over time.

In the second quarter of 2015, we began offering services in Calgary and Vancouver and are currently researching commercial real estate in the Canadian cities of Ottawa and Edmonton.

Further, on July 1, 2015, we expanded our International services into Madrid, Spain through the acquisition of the assets of Belbex Corporate, S.L., a small commercial real estate information provider operating in Madrid.

See Item 7A for details on the impact currency changes have on our results of operations.

In March 2015, the Compensation Committee of our Board of Directors approved grants of restricted common stock to our executive officers that vest based on our achievement of a three-year cumulative revenue goal established at the grant date, and are subject to forfeiture in the event the foregoing performance condition is not met by December 31, 2017.

These grants of restricted common stock are also subject to continuing employment requirements and a market condition based on total shareholder return (“TSR”).

The Compensation Committee of our Board of Directors may grant additional performance-based equity awards in the future under the Company’s 2007 Stock Incentive Plan.

Business Combinations

We allocate the purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired database technology, and acquired trade names from a market participant's perspective, useful lives and discount rates.

During the measurement period, we may record adjustments to the assets acquired and liabilities assumed.

Apartments, LLC (doing business as Apartments.com), our subsidiary, operates an online apartment marketplace for renters that matches apartment seekers with apartment homes and provides property managers and owners a platform for marketing their properties.

BizBuySell is an online marketplace for operating businesses for sale, and LandsofAmerica is an online marketplace for rural land for sale.

To more fully integrate and connect our services and, ultimately, to provide improved access to our resources, we launched a new brand identity in May 2014.

The new branding is designed to unite our flagship brands - CoStar, LoopNet, Apartments.com, BizBuySell and LandsofAmerica - with a modern, cohesive look that will enhance customers’ access to the full breadth of our information, analytics and online marketplace solutions.

The resulting streamlined network of platforms is expected to improve the customer experience and make it easier for customers to find the most useful tools for their commercial real estate information, analytics and online marketplace needs.

The new brand identity was unveiled in connection with the launch of our new corporate website and newly designed website interfaces for CoStar, LoopNet and Apartments.com.

Our new website interfaces provide streamlined navigation and search functions for visitors and enable customers to quickly access our market-leading services.

Since introducing our new brand identity in May 2014, we have relaunched the Apartments.com website.

Prior to the third quarter of 2014, FOCUSTM was our primary service offering in our International operating segment.

We introduced CoStar Suite in the U.K. in the fourth quarter of 2012 and no longer offered FOCUS to new clients beginning in 2013.

Recent Acquisition

Similar to our other past acquisitions, we plan to integrate, further develop and cross-sell the services offered by the Apartments.com Business and the other services we offer.

On the Closing Date, we also entered into the 2014 Credit Agreement by and among CoStar, as Borrower, CoStar Realty Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.

The 2014 Credit Agreement provides for a $400.0 million term loan facility and a $225.0 million revolving credit facility, each with a term of five years.

The proceeds of the term loan facility and the initial borrowing of $150.0 million under the revolving credit facility on the Closing Date were used to refinance the term loan facility and revolving credit facility established under a credit agreement dated February 16, 2012 (the “2012 Credit Agreement”), including related fees and expenses, and to pay a portion of the consideration and transaction costs related to the acquisition of the Apartments.com Business.

The undrawn proceeds of the revolving credit facility are available for our working capital needs and other general corporate purposes.

The obligations under the 2014 Credit Agreement are guaranteed by all of our material subsidiaries and are secured by a lien on substantially all of our assets and those of our material subsidiaries, in each case subject to certain exceptions, pursuant to security and guarantee documents entered into on the Closing Date.

The enhancements improve CoStar Suite's user interface, search functionality and analytic capabilities.

For example, the CoStar Multifamily® information search allows users to access our extensive multifamily property database.

In addition, CoStar Lease AnalysisTM, an integrated workflow tool, provides users a simple way to produce understandable cash flows for any proposed or existing lease.

We plan to continue our software development efforts to enhance our new Lease Analysis workflow tool and to develop other potential lease comparable services in 2015.

In October 2013, we also released CoStarGo® 2.0, the next generation of our mobile application, which was launched in the U.S. on August 15, 2011 and introduced in the U.K. on November 5, 2012.

CoStarGo is our iPad application that integrates and provides CoStar Suite subscribers mobile access to our comprehensive property, tenant and comparable sales information.

CoStarGo 2.0 adds powerful analytic capabilities to our comprehensive mobile solution.

In 2014, we introduced enhancements to our flagship marketing platform, LoopNet.com.

For example, we added a targeted advertising service that allows brokers or firms to purchase advertisements based on geographic and property type criteria.

Additionally, we introduced ProVideo, a service that enables owners and brokers to enhance their LoopNet listings with high quality videos of interior spaces, amenities and exterior features.

We continue to integrate, develop and cross-sell the services offered by the businesses we have acquired, including Apartments.com and LoopNet.

Our goal is to upsell clients to the services that best meet their needs and to create further cross-selling revenue synergies.

We would expect to see a short-term reduction in revenues and earnings if we implement this transition.

Internationally, we continue to integrate our operations more fully with those in the U.S. Similar to our North America operating segment, we intend to continue to upgrade our international platform of services and expand the coverage of our service offerings within our International segment.

To further those initiatives, we introduced CoStar Suite in the U.K. during the fourth quarter of 2012 and no longer offered FOCUS to new clients beginning in 2013.

CoStar Suite is sold as a consistent international platform of service offerings consisting of CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant and through the Company's mobile application, CoStarGo.

CoStarGo 2.0 was released in the U.K. in October 2013 simultaneous with its release in the U.S. Additionally, we have upgraded our back-end research operations, fulfillment and Customer Relationship Management systems to support these new U.K. services.

The financial performance of our International operating segment continues to improve.

During the twelve months ended December 31, 2014, International EBITDA increased to a positive amount as a result of increased revenue and decreased operating expenses as compared to the twelve months ended December 31, 2013.

In support of our continued expansion and development, during June 2014, we completed a public equity offering of 3,450,000 shares of common stock for $160.00 per share, resulting in net proceeds to the Company of approximately $529.4 million.

We intend to use the net proceeds from the public equity offering to fund all or a portion of the costs of any strategic acquisitions we decide to pursue in the future, to finance the growth of our business and for working capital and other general corporate purposes.

No stock-based compensation expense related to the grant of 2014 performance-based restricted common stock was recorded for the years ended December 31, 2012 and 2013.

CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant and through our mobile application, CoStarGo, and is our primary service offering in our North America and International operating segments.

We provide information, analytics and online marketplace services to the commercial real estate and related business community in the [removed: U.S.,] [added: U.S. and parts of the] U.K., [removed: Toronto, Canada] [added: Canada, Spain] and France.

Our functional currency for our operations in the U.K., [removed: Canada] [added: Canada, Spain] and France is the local currency.

For the year ended December 31, [removed: 2014,] [added: 2015,] revenue denominated in foreign currencies was approximately [removed: 4.7%] [added: 4.1%] of total revenue.

For the year ended December 31, [removed: 2014,] [added: 2015,] our revenue would have decreased by approximately [removed: $236,000] [added: $2.9 million] if the U.S. dollar exchange rate used strengthened by 10%.

A 10% strengthening of the U.S. dollar exchange rate against all currencies with which we have exposure at December 31, [removed: 2014] [added: 2015] would have resulted in an increase of approximately [removed: $3.3] [added: $2.9] million in the carrying amount of net assets.

For the year ended December 31, [removed: 2014,] [added: 2015,] our revenue would have increased by approximately [removed: $236,000] [added: $2.9 million] if the U.S. dollar exchange rate used weakened by 10%.

A 10% weakening of the U.S. dollar exchange rate against all currencies with which we have exposure at December 31, [removed: 2014] [added: 2015] would have resulted in a decrease of approximately [removed: $3.3] [added: $2.9] million in the carrying amount of net assets.

As of December 31, [removed: 2014,] [added: 2015,] accumulated other comprehensive loss included a loss from foreign currency translation adjustments of approximately [removed: $5.7] [added: $7.2] million.

We do not have material exposure to market risks associated with changes in interest rates related to cash equivalent securities held as of December 31, [removed: 2014.][added: 2015.]

As of December 31, [removed: 2014,] [added: 2015,] we had [removed: $527.0] [added: $421.8] million of cash and cash equivalents.

As of December 31, [removed: 2014,] [added: 2015,] we had [removed: $385.0] [added: $365.0] million of long-term debt bearing interest at a variable rate of LIBOR plus 2.00%, subject to adjustment based on our First Lien Secured Leverage Ratio (as defined in the 2014 Credit Agreement).

Based on our outstanding borrowings as of December 31, [removed: 2014,] [added: 2015,] an increase in the interest rate by 25 basis points would result in an increase of approximately [removed: $1.0 million] [added: $900,000] in interest expense annually.

Based on our outstanding borrowings as of December 31, [removed: 2014,] [added: 2015,] a decrease in the interest rate by 25 basis points would result in a decrease of approximately [removed: $1.0 million] [added: $900,000] in interest expense annually.

As of December 31, [removed: 2014, auctions for $18.7] [added: 2015, $16.8] million of our investments in auction rate securities failed to settle at auction.

Based on an assessment of fair value of these investments in ARS as of December 31, [removed: 2014,] [added: 2015,] we determined that there was a [added: net] decline in the fair value of our ARS investments of approximately [removed: $691,000,] [added: $435,000,] which was deemed to be a temporary impairment and recorded as an unrealized loss in accumulated other comprehensive loss in stockholders’ equity.

We [removed: have] [added: had] approximately [removed: $1.4] [added: $1.5] billion in intangible assets as of December 31, [removed: 2014.][added: 2015.]

As of December 31, [removed: 2014,] [added: 2015,] we believe our intangible assets will be recoverable, however, changes in the economy, the business in which we operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability.

CoStar Group, Inc., a Delaware corporation, founded in 1987, is the number one provider of information, analytics and online marketplaces to the commercial real estate industry in the United States (“U.S.”) and United Kingdom (“U.K.”) based on the fact that we offer the most comprehensive commercial real estate database available; have the largest research department in the industry; own and operate the leading online marketplaces for commercial real estate [added: and apartment listings] in the U.S. based on the number of unique visitors [added: and site visits] per month; provide more information, analytics and marketing services than any of our competitors and believe that we generate more revenues than any of our [added: commercial real estate information] competitors.

We created and compiled our standardized platform of information, analytics and online marketplace services where [removed: members] [added: industry professionals and consumers] of [removed: the] commercial real [removed: estate] [added: estate, including apartments,] and [added: the] related business [removed: community] [added: communities,] can continuously interact and facilitate transactions by efficiently [added: accessing and] exchanging accurate and standardized [removed: commercial] real [removed: estate] [added: estate-related] information.

Our service offerings span all commercial property types, including office, retail, industrial, multifamily, commercial land, mixed-use [removed: properties] and hospitality.

We manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being North America, which includes the U.S. and [added: parts of] Canada, and International, which includes [added: parts of] the [removed: U.K.] [added: U.K., Spain] and France.

[removed: Since our founding, our] [added: Our] strategy [removed: has been] [added: is] to provide [added: industry professionals and consumers of] commercial real estate [removed: professionals] [added: and apartments] with critical knowledge to explore and complete transactions by offering the most comprehensive, timely and standardized information on [removed: U.S.] commercial real [removed: estate.][added: estate and apartments and the right tools to be able to effectively utilize that information.]

[removed: As we have grown and further developed our plans,] [added: Over time,] we have expanded our services for commercial real estate information, analytics and online marketplaces in an effort to continue to meet the needs of this industry as it grows and evolves.

We have also extended our offering of comprehensive commercial real estate information [added: geographically] to include London and other parts of the U.K., [removed: Toronto,] Canada, [added: France] and [removed: parts of France,] [added: Spain,] through acquisitions and internal growth and development.

We deliver our commercial real estate [added: information] content to our U.S. customers primarily via an integrated suite of online service offerings that includes information about space available for lease, comparable sales information, information about properties for sale, tenant information, [removed: internet] [added: Internet] marketing services, analytical capabilities, information for clients’ websites, information about industry professionals and their business relationships, data integration and industry news.

[removed: LoopNet, our subsidiary, operates an] [added: Our LoopNet] online marketplace [removed: that] enables commercial property owners, landlords, and real estate agents working on their behalf to list properties for sale or for lease and to submit detailed information about property listings.

Commercial real estate agents, buyers and tenants [removed: also] use [removed: LoopNet's online marketplace] [added: LoopNet extensively] to search for available property listings that meet their criteria.

[added: Apartments.comTM Our subsidiary,] Apartments, LLC (doing business as Apartments.com), [removed: our subsidiary,] operates an online apartment marketplace [removed: for renters] that [removed: matches apartment seekers with] [added: offers renters a searchable database of] apartment [removed: homes] [added: listings] and provides [added: professional] property [removed: managers] [added: management companies] and [removed: owners a platform for marketing their properties.][added: landlords with an advertising destination.]

[removed: Apartments.com draws on CoStar’s multifamily database, which contains detailed information on apartment properties, and a research effort to document the apartment industry in the U.S.] CoStar designed the [removed: new] Apartments.com [removed: site,] [added: and ApartmentFinder.com websites,] which [removed: was] [added: were] launched in February [added: 2015 and December] 2015, [removed: around the needs of the renter in order] [added: respectively,] to [added: meet renter preferences and demands, which we believe will] drive traffic to [removed: the site] [added: those sites] and attract advertisers who prefer to advertise on heavily trafficked apartment websites.

The [removed: newly launched site provides] [added: sites provide] a comprehensive selection of rentals, information on actual [removed: rental] availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history, schools and other [added: facts] important [removed: facts.][added: to renters.]

To help renters find the information that meets their needs, the [removed: new site] [added: sites] also [removed: offers] [added: offer] innovative search [removed: tools.][added: tools such as the PolygonTM Search tool, which allows renters to specifically define the area in which they want to find an apartment.]

We provide market research and analysis for commercial real estate investors and lenders via our CoStar Portfolio Strategy and CoStar Market Analytics service [removed: offerings,] [added: offerings;] portfolio and debt analysis, management and reporting capabilities through our CoStar Investment Analysis and CoStar Risk Analytics service offerings; and real estate and lease management solutions, including lease administration and abstraction services, through our CoStar Real Estate Manager service offerings.

We have created and are continually improving our standardized platform of information, analytics and online marketplaces where members of the commercial real estate and related business community can continuously interact and facilitate transactions by efficiently [added: accessing and] exchanging accurate and standardized commercial real estate information.

Our database has been developed and enhanced for more than [removed: 27] [added: 28] years by a research department that makes thousands of daily database updates.

In addition to our internal efforts to grow the database, we have obtained and assimilated [removed: over 90] [added: approximately 100] proprietary databases.

To encourage clients to use our services regularly, we generally charge a fixed monthly amount for our subscription-based [removed: information] services rather than charging fees based on actual system [removed: usage.][added: usage or number of paid clicks.]

Contract rates [added: for subscription-based services] are generally based on the number of sites, number of users, organization size, the [removed: client's] [added: client’s] business focus, [removed: geography and] [added: geography,] the number and types of services to which a client [removed: subscribes.][added: subscribes, the number of properties a client advertises and the prominence and placement of a client's advertised properties in the search results.]

[removed: In April 2012, we completed] [added: Our more recent acquisitions include] the acquisition of LoopNet, an online marketplace that enables property owners, landlords, and commercial real estate agents working on their behalf to list properties for sale or for lease and to submit detailed information about property [removed: listings.][added: listings, in April 2012.]

[removed: More recently, on] [added: On] April 1, 2014, we purchased [added: from Classified Ventures, LLC (“CV”)] certain assets and assumed certain liabilities related to the Apartments.com business [removed: (collectively, the “Apartments.com Business”),] [added: (collectively referred to as “Apartments.com”),] a national online apartment rentals resource for renters, property managers and [removed: owners, from Classified Ventures, LLC (“CV”).][added: owners.]

[removed: Expansion and] Development [added: and Expansion]

We expect to continue our software development efforts to improve existing services, introduce new services, integrate products and services, cross-sell existing services, and expand and develop supporting technologies for our [removed: research,] [added: research and] sales and marketing organizations.

[removed: In] [added: We launched an improved Apartments.com website in] February [removed: 2015, as a result of our product development efforts,] [added: 2015 and] we [added: recently] launched a new [removed: Apartments.com] [added: ApartmentFinder.com] website [removed: with] [added: in December 2015, each of which has] a cleaner look, information about actual rental availabilities, rents and other fees, and better search functionality.

The marketing campaign [removed: is expected to feature] [added: featured] television and radio advertising, online/digital advertising, social media and out-of-home ads and [removed: will be] [added: was] reinforced by Search Engine Marketing.

[removed: For example, we are currently assessing] [added: We also continue to assess] whether to transition the LoopNet marketplace to a pure marketing site for commercial real estate where, eventually, all listings would be paid and users could search the site for free.

We [removed: recently expanded] [added: are expanding] the geographic reach of our North America services.

Building on our experience in Toronto, we [removed: plan] [added: have expanded and are continuing] to expand our research into additional Canadian cities.

We expect these investments to result in further penetration of our subscription-based [removed: information] services and the successful cross-selling of our services to customers in existing markets.

We are also investing in our research capacity to support continued growth of our information and analytics offerings, to support [removed: the] Apartments.com [removed: Business] and [added: Apartment Finder,] to expand into additional Canadian [removed: markets.][added: markets and to provide services in Madrid, Spain.]

By combining our extensive database, [removed: approximately 1,481] researchers and outside contractors, our experienced team of analysts and economists, technological expertise and broad customer base, we believe that we have created such a platform.

To create the [removed: new] Apartments.com [added: website and the ApartmentFinder.com] website, we have drawn on our multifamily database and undertaken a research effort collecting and verifying information and visiting and photographing properties.

With the launch of the [removed: new] [added: improved] Apartments.com [added: website and the new ApartmentFinder.com] website, we believe that we have created [removed: an] easily searchable [removed: site] [added: sites] with a comprehensive selection of rentals, information on actual rental availabilities and rents, and in-depth data on neighborhoods, including restaurants, nightlife, history, schools and other important facts.

CoStar has spent more than [removed: 27] [added: 28] years building and acquiring a database of commercial real estate information, which includes information on leasing, sales, comparable sales, tenants, and demand statistics, as well as digital images.

In [removed: 2014,] [added: 2015,] our full time researchers and contractors [removed: drove millions of miles,] conducted [removed: hundreds of thousands of on-site building inspections, and conducted] millions of interviews of brokers, owners, tenants, apartment community owners and property managers.

[removed: Each researcher is] [added: Our researchers are] responsible for maintaining the accuracy and reliability of [added: our] database information.

CoStar's field research effort also includes creating high quality videos of interior spaces (including walk-through videos [added: and 3D virtual apartment tours] of apartment communities), amenities and exterior features of properties.

CoStar utilizes [removed: 146] high-tech, field research vehicles across the U.S., Canada and the U.K. A significant majority of these vehicles are [removed: customized] [added: customized,] energy efficient hybrid cars that are equipped with computers, proprietary Global Positioning System tracking software, high resolution digital cameras and handheld laser instruments to help precisely measure buildings, geo-code them and position them on digital maps.

[removed: In 2015, we plan to] [added: We] place researchers on the low-flying aircraft to scout additional commercial developments and take aerial photographs.

We strive to cross-sell our services to our customers and to upsell services that may best suit their needs.

Our subscription-based services consist primarily of information, analytics and online marketplace services offered over the Internet to commercial real estate industry and related professionals.

The listing process is efficient and enables comprehensive information about listed properties to be provided.

We are working to integrate the backend systems of the LoopNet and CoStar databases, so that the two services will share a unified database of information.

We also hope to increase the quantity and quality of the listing information available by enabling select brokers and other industry participants to load information directly into the integrated system, simultaneously reducing the time and costs associated with researching and maintaining our comprehensive database of commercial real estate information.

Apartments.comTM is part of our network of apartment marketing sites, which also includes ApartmentFinder.comTM and ApartmentHomeLiving.com.

Our apartment marketing network of subscription-based services offers renters a searchable database of apartment listings and provides professional property management companies and landlords with an advertising destination.

Our apartment marketing network draws on and leverages CoStar’s multifamily database, which contains detailed information on apartment properties.

In 2015, we entered into an agreement to be the exclusive third party provider of apartment community listings on the websites owned and operated by News Corp. subsidiary Move, Inc.- realtor.com®, Move.com, and Doorsteps.com - with advertiser content from Apartments.com and ApartmentFinder.com.

Through this agreement, we are able to promote the apartment communities of our advertisers across six major apartment and real estate rental websites, increasing traffic across our network of apartment marketing websites, and in turn increasing the lead flow to our advertisers’ communities.

Our comprehensive commercial real estate database powers our information services, sources data used in our analytic services and provides content for some of our online marketplace services.

Our ability to utilize the same commercial real estate information across our standardized platform creates efficiencies in operations and improves data for our customers.

On June 1, 2015, to further support our expansion into the multifamily vertical, we acquired Network Communications, Inc. (“NCI”), including its Apartment Finder business (collectively referred to as “Apartment Finder”).

Apartment Finder provides lead generation, advertising, and Internet marketing solutions to property managers and owners through its main service, ApartmentFinder.com.

Further, on July 1, 2015, we expanded our International services into Madrid through the acquisition of the assets of Belbex Corporate, S.L., a small commercial real estate information provider operating in Madrid, Spain.

We are committed to supporting and improving our information, news, analytic and online marketplace solutions.

The launch of the improved Apartments.com website in February 2015 and the new ApartmentFinder.com website in December 2015 are examples of our software development efforts to improve existing services, introduce new services, integrate products and services, and cross-sell existing services.

We believe the improved sites, enhanced search capabilities, availability of information regarding real-time vacancies, and our continued development and introduction of enhancements to our online apartment rental marketplaces will attract more consumers, making these sites more attractive to property managers, which will increase our cross-selling opportunities.

Our software development initiatives in 2015 included enhancing our new CoStar Lease Analysis® integrated workflow tool to provide users a simple way to produce understandable cash flows for leases, and to enhance other lease comparable services.

We believe greater functionality makes our services valuable to an even broader audience and helps us increase sales of our services to brokers, banks, owners and institutional investors.

We expect technology enhancements to drive continued revenue growth in 2016 and for the foreseeable future.

In the event that we eliminate or phase out particular service offerings, we may experience reduced revenues and earnings.

The decision to eliminate or phase out a service offering may also ultimately result in increased revenues and earnings from sales of other services we offer in lieu of the eliminated or phased out services.

For example, we recently eliminated certain Apartment Finder services and phased out Apartment Finder print advertising and moved to an all-digital offering.

We expect a short-term reduction in revenues and associated costs resulting from the elimination of these Apartment Finder services.

Additionally, we are working to integrate the backend systems of the LoopNet and CoStar databases, so that the two services will share a unified database of information in order to create efficiencies in operations and improved data for our customers.

If and when we implement such a shift, we will seek to convert LoopNet marketplace customers to higher value, more profitable annual subscription information services, which should increase revenues and earnings over time.

However, we cannot predict with certainty the amount or timing of any reductions in revenues and earnings or subsequent increases in revenues and earnings, if any, resulting from any eliminations or phasing out of the LoopNet information services or any other service offering, if implemented.

Our revenues have increased as a result of revenue from acquired businesses and from cross-selling opportunities among the customers of CoStar and the acquired companies.

We expect to continue to increase revenues as a result of such cross-selling opportunities.

We may incur increased expenses in connection with any marketing and sales campaigns involving cross-selling opportunities and initiatives, and in connection with promotion of our new services and brands.

In the second quarter of 2015, we began offering services in Calgary and Vancouver and are currently researching commercial real estate in the Canadian cities of Ottawa and Edmonton.

Further, on July 1, 2015, we expanded our International services into Madrid through the acquisition of the assets of Belbex Corporate, S.L., a small commercial real estate information provider operating in Madrid, Spain.

While we believe investments we make in our business create a platform for growth, those investments may reduce our profitability and adversely affect our financial position.

We intend to continue to assess the need for additional investments in our business, in addition to the investments discussed above in order to develop and distribute new services within our current platform, expand the reach of our current service offerings or to integrate new or current offerings to provide a more robust, efficient or complete service offering.

Any future product development or expansion of services, combination and coordination of services or elimination of services or internal expansion, development or restructuring efforts could reduce our profitability and increase our capital expenditures.

Any new investments, changes to our service offerings or other unforeseen events could cause us to generate losses and negative cash flow from operations in the future.

We expect to continue our software development efforts to improve existing services, introduce new services, integrate products and services, cross-sell existing services, and expand and develop supporting technologies for our research and sales and marketing organizations.

This highly complex database is comprised of hundreds of data fields, tracking such categories as location, site and zoning information, building characteristics, space and unit availability, tax assessments, ownership, sales and lease comparables, space requirements, number of retail stores, number of listings, mortgage and deed information, for-sale and for-lease listings, income and expense histories, tenant names, lease expirations, contact information, historical trends, demographic information and retail sales per square foot.

The database also includes building photographs, aerial photographs, 3D virtual apartment tours, plat maps and floor plans.

Our subscription-based information services consist primarily of CoStar SuiteTM services.

CoStar Suite is sold as a platform of service offerings consisting of CoStar Property Professional®, CoStar COMPS Professional® and CoStar Tenant® and through our mobile application, CoStarGo®.

Prior to the third quarter of 2014, FOCUSTM was our primary service offering in our International operating segment.

We introduced CoStar Suite in the U.K. in the fourth quarter of 2012 and no longer offered FOCUS to new clients beginning in 2013.

Historically, our expansion includes the acquisitions of Chicago ReSource in Chicago in 1996 and New Market Systems in San Francisco in 1997.

In August 1998, we expanded into the Houston region through the acquisition of Houston-based real estate information provider C Data Services.

In January 1999, we expanded further into the Midwest and Florida by acquiring LeaseTrend and into Atlanta and Dallas/Fort Worth by acquiring Jamison Research.

In February 2000, we acquired COMPS.COM, a San Diego-based provider of commercial real estate information.

In November 2000, we acquired First Image Technologies, a California-based provider of commercial real estate software.

In September 2002, we expanded further into Portland, Oregon through the acquisition of certain assets of Napier Realty Advisors (doing business as REAL-NET).

In January 2003, we established a base in the U.K. with our acquisition of London-based FOCUS Information Limited.

In May 2004, we expanded into Tennessee through the acquisition of Peer Market Research, and in June 2004, we extended our coverage of the U.K. through the acquisition of Scottish Property Network.

In September 2004, we strengthened our position in Denver, Colorado through the acquisition of substantially all of the assets of RealComp, a local comparable sales information provider.

In January 2005, we acquired National Research Bureau, a Connecticut-based provider of U.S. shopping center information.

In December 2006, our U.K. subsidiary, CoStar Limited, acquired Grecam S.A.S. (“Grecam”), a provider of commercial property information and market-level surveys, studies and consulting services located in Paris, France.

In February 2007, CoStar Limited also acquired Property Investment Exchange Limited (“Propex”), a provider of commercial property information and operator of an electronic platform that facilitates the exchange of investment property located in London, England.

In April 2008, we acquired the assets of First CLS (doing business as the Dorey Companies and DoreyPRO), an Atlanta-based provider of local commercial real estate information.

In July 2009, we acquired Massachusetts-based CoStar Portfolio Strategy (formerly known as Property and Portfolio Research), a provider of real estate analysis, market forecasts and credit risk analytics to the commercial real estate industry, and its wholly owned U.K. subsidiary Property and Portfolio Research Ltd., and in October 2009, we acquired Massachusetts-based CoStar Investment Analysis (formerly known as Resolve Technology), a provider of business intelligence and portfolio management software serving the institutional real estate investment industry.

In October 2011, we acquired CoStar Real Estate Manager (formerly known as Virtual Premise), a Software as a Service, or on-demand software provider of real estate and lease management solutions located in Atlanta, Georgia.

In October 2013, we introduced technology enhancements to CoStar Suite, our platform of service offerings consisting of CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant.

The enhancements improve Costar Suite's user interface, search functionality and analytic capabilities.

For example, the CoStar Multifamily® information search feature allows users to access our extensive multifamily property database.

In addition, CoStar Lease AnalysisTM, an integrated workflow tool, provides users a simple way to produce understandable cash flows for any proposed or existing lease.

We plan to continue our software development efforts to enhance our new Lease Analysis workflow tool and to develop other potential lease comparable services in 2015.

In October 2013, we also released CoStarGo® 2.0, the next generation of our mobile application, which was launched in the U.S. on August 15, 2011 and introduced in the U.K. on November 5, 2012.

CoStarGo is our iPad application that integrates and provides CoStar Suite subscribers mobile access to our comprehensive property, tenant and comparable sales information.

CoStarGo 2.0 adds powerful analytic capabilities to our comprehensive mobile solution.

In 2014, we introduced enhancements to our flagship marketing platform, LoopNet.com.

For example, we added a targeted advertising service that allows brokers or firms to purchase advertisements based on geographic and property type criteria.

Additionally, we introduced ProVideo, a service that enables owners and brokers to enhance their LoopNet listings with high quality videos of interior spaces, amenities and exterior features.

In conjunction with the launch, we plan to embark on a wide-scale marketing campaign commencing during the first quarter of 2015 and running throughout the remainder of 2015 to generate brand awareness and site traffic for Apartments.com, including an incremental investment of $75.0 million above Apartments.com’s 2014 annualized marketing spend since the close of the acquisition of the Apartments.com Business.

We continue to integrate, develop and cross-sell the services offered by the businesses we have acquired, including Apartments.com and LoopNet.

To more fully integrate and connect our services and, ultimately, to provide improved access to our resources, we launched a new brand identity in May 2014.

The new branding is designed to unite our flagship brands - CoStar, LoopNet, Apartments.com, BizBuySell and LandsofAmerica - with a modern, cohesive look that will enhance customers’ access to the full breadth of our information, analytics and marketplace solutions.

The resulting streamlined network of platforms is expected to improve the customer experience and make it easier for customers to find the most useful tools for their commercial real estate information, analytic and marketplace needs.

The new brand identity was unveiled in connection with the launch of our new corporate website and newly designed website interfaces for CoStar, LoopNet and Apartments.com.

Our new website interfaces provide streamlined navigation and search functions for visitors and enable customers to quickly access our market-leading services.

Internationally, we continue to integrate our operations more fully with those in the U.S. Similar to our North America operating segment, we intend to continue to upgrade our international platform of services and expand the coverage of our service offerings within our International segment.

To further those initiatives, we introduced CoStar Suite in the U.K. during the fourth quarter of 2012 and no longer offered FOCUS to new clients beginning in 2013.

CoStar Suite is sold as a consistent international platform of service offerings consisting of CoStar Property Professional, CoStar COMPS Professional and CoStar Tenant and through the Company's mobile application, CoStarGo.

Certain pending legal proceedings are discussed in Note 11 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

For the fiscal year ended December 31, [removed: 2014][added: 2015]

[removed: ][added: ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [added: x]

Based on the closing price of the common stock on June 30, [removed: 2014] [added: 2015] on the Nasdaq [removed: Stock Market, Nasdaq] Global Select Market, the aggregate market value of registrant’s common stock held by non-affiliates of the registrant [added: as of June 30, 2015] was approximately [removed: $4.9] [added: $6.4] billion.

As of February [removed: 20, 2015,] [added: 19, 2016,] there were [removed: 32,311,866] [added: 32,513,536] shares of the registrant’s common stock outstanding.

Portions of the registrant’s definitive proxy statement, which is expected to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, [removed: 2014,] [added: 2015,] are incorporated by reference into Part III of this Report.

| Item 1. | [removed: [Business](#s2EE97C55920C8BA9B2D666C97080D661)] [added: [Business](#sAB11BB725D0C716518B9B8FFC2F17C34)] | [removed: [4](#s2EE97C55920C8BA9B2D666C97080D661)] [added: [4](#sAB11BB725D0C716518B9B8FFC2F17C34)] |

| Item 1A. | [Risk [removed: Factors](#s24543FD42B3E6C6FE5DC66C9709F13EF)] [added: Factors](#s4F271A73A374818A9729B8FFC3201195)] | [removed: [18](#s24543FD42B3E6C6FE5DC66C9709F13EF)] [added: [16](#s4F271A73A374818A9729B8FFC3201195)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s0F65E69C24389F25553866C970DD368E)] [added: Comments](#s49596E0F752BCAA4AEC8B8FFC33FE2E5)] | [removed: [31](#s0F65E69C24389F25553866C970DD368E)] [added: [29](#s49596E0F752BCAA4AEC8B8FFC33FE2E5)] |

| Item 2. | [removed: [Properties](#s44C0C3D4C6C6071DD59E66C970ED7EE1)] [added: [Properties](#sE3950307C5B48F166270B8FFC36EC053)] | [removed: [31](#s44C0C3D4C6C6071DD59E66C970ED7EE1)] [added: [29](#sE3950307C5B48F166270B8FFC36EC053)] |

| Item 3. | [Legal [removed: Proceedings](#s74AB3D0B1D582884580366C9711C1903)] [added: Proceedings](#sB1DEAF98FCDD87F0B89EB8FFC39C5570)] | [removed: [32](#s74AB3D0B1D582884580366C9711C1903)] [added: [29](#sB1DEAF98FCDD87F0B89EB8FFC39C5570)] |

| Item 4. | [Mine Safety [removed: Disclosures](#sBF78C8525C37CB04E4F166C9714A6388)] [added: Disclosures](#s8A209B2944EC61D08727B8FFC3BCBDA5)] | [removed: [32](#sBF78C8525C37CB04E4F166C9714A6388)] [added: [30](#s8A209B2944EC61D08727B8FFC3BCBDA5)] |

| Item 5. | [Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s14E40679C92F7CBB91B166C95D0F834E)] [added: Securities](#s99A8FD567ED553C61E82B8FFAF906769)] | [removed: [33](#s14E40679C92F7CBB91B166C95D0F834E)] [added: [30](#s99A8FD567ED553C61E82B8FFAF906769)] |

| Item 6. | [Selected Consolidated Financial and Operating [removed: Data](#sD7D5A49D4731183432A566C958BC4D2B)] [added: Data](#s63B97F3C0AF09DA8070CB8FFAE48906B)] | [removed: [35](#sD7D5A49D4731183432A566C958BC4D2B)] [added: [33](#s63B97F3C0AF09DA8070CB8FFAE48906B)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s0251E46D128AD04BE53666C971E62F51)] [added: Operations](#sAA2CACC9AAD4D24CB71DB8FFC4674507)] | [removed: [36](#s0251E46D128AD04BE53666C971E62F51)] [added: [34](#sAA2CACC9AAD4D24CB71DB8FFC4674507)] |

| Item 7A. | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#sC9537143C8ED8D807BCE66C974B4C87E)] [added: Risk](#sA66BAB0AA01FC78DA9B9B8FFC73582C9)] | [removed: [54](#sC9537143C8ED8D807BCE66C974B4C87E)] [added: [53](#sA66BAB0AA01FC78DA9B9B8FFC73582C9)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#sAF24B47784E471DD485F66C974D331DB)] [added: Data](#sD4CAB4444442811757B0B8FFC74427C0)] | [removed: [55](#sAF24B47784E471DD485F66C974D331DB)] [added: [54](#sD4CAB4444442811757B0B8FFC74427C0)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s1CAE8E84AC4B61CF4E0D66C97502ED2D)] [added: Disclosure](#s5806BF059EF32846A027B8FFC783DDBD)] | [removed: [55](#s1CAE8E84AC4B61CF4E0D66C97502ED2D)] [added: [54](#s5806BF059EF32846A027B8FFC783DDBD)] |

| Item 9A. | [Controls and [removed: Procedures](#s255C49B6675CBD218BE466C97531EF9D)] [added: Procedures](#s039BF1BB440A9479969EB8FFC7A2DBD1)] | [removed: [55](#s255C49B6675CBD218BE466C97531EF9D)] [added: [54](#s039BF1BB440A9479969EB8FFC7A2DBD1)] |

| Item 9B. | [Other [removed: Information](#s456CDF1E1EB05DE4506C66C9756057CA)] [added: Information](#sECA5CBA4EC2AC453E94CB8FFC7E0339A)] | [removed: [56](#s456CDF1E1EB05DE4506C66C9756057CA)] [added: [55](#sECA5CBA4EC2AC453E94CB8FFC7E0339A)] |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#s5D9A59EE5AE284DB610F66C975BD8791)] [added: Governance](#s4E1F69A2BA37C754A925B8FFC82EBE32)] | [removed: [57](#s5D9A59EE5AE284DB610F66C975BD8791)] [added: [55](#s4E1F69A2BA37C754A925B8FFC82EBE32)] |

| Item 11. | [Executive [removed: Compensation](#s335E4DC5CB01BC44542A66C975CD9A90)] [added: Compensation](#s40EE4AE44447AC33665AB8FFC84EEA19)] | [removed: [57](#s335E4DC5CB01BC44542A66C975CD9A90)] [added: [55](#s40EE4AE44447AC33665AB8FFC84EEA19)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sDC51DE35A39C7E7DFDF366C9760B82CB)] [added: Matters](#s091452224989F14A05D2B8FFC87C0F40)] | [removed: [57](#sDC51DE35A39C7E7DFDF366C9760B82CB)] [added: [55](#s091452224989F14A05D2B8FFC87C0F40)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sE0F8FC0C9B7B63F1E97466C9762A10E6)] [added: Independence](#sB1A23BE6A266EECB488BB8FFC89CE43E)] | [removed: [57](#sE0F8FC0C9B7B63F1E97466C9762A10E6)] [added: [55](#sB1A23BE6A266EECB488BB8FFC89CE43E)] |

| Item 14. | [Principal Accountant Fees and [removed: Services](#s0F99E82D4CB1F15F3DC766C976599CB8)] [added: Services](#sECCCF915EE7DEF58D39AB8FFC8DA9FA1)] | [removed: [57](#s0F99E82D4CB1F15F3DC766C976599CB8)] [added: [55](#sECCCF915EE7DEF58D39AB8FFC8DA9FA1)] |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#s8F4945CE8BF9833809B566C953CCBCF9)] [added: Schedules](#s0A9E4FDAB987A48467E6B8FFA88EAD20)] | [removed: [58](#s8F4945CE8BF9833809B566C953CCBCF9)] [added: [56](#s0A9E4FDAB987A48467E6B8FFA88EAD20)] |

| | [Index to [removed: Exhibits](#s417CF124C9A44D06ED8466C97705A06B)] [added: Exhibits](#s743CC509C061A5E9CE44B8FFC9767E5D)] | [removed: [61](#s417CF124C9A44D06ED8466C97705A06B)] [added: [59](#s743CC509C061A5E9CE44B8FFC9767E5D)] |

| | [Index to Consolidated Financial [removed: Statements](#s04BFC4A1810784BD4E0466C9772406B1)] [added: Statements](#sA4C7B6CA38458AA7868CB8FFC995C11A)] | [removed: [F-1](#s04BFC4A1810784BD4E0466C9772406B1)] [added: [F-1](#sA4C7B6CA38458AA7868CB8FFC995C11A)] |

10-K 1 csgp20151231-10k.htm 2015 10-K

| | [Signatures](#sEE56C4247D7884C4109DB8FFC938C7C3) | [57](#sEE56C4247D7884C4109DB8FFC938C7C3) |

10-K 1 csgp-10k_20141231.htm 2014 10-K

| | [Signatures](#sAED913B788CC7786B9EB66C976C6FB8E) | [59](#sAED913B788CC7786B9EB66C976C6FB8E) |

Our lease for this facility has a maximum term ending July 8, 2023, with early termination [added: available] at our option on July 9, 2018, with advance notice.

In addition to two downtown Washington, DC leased facilities (including our headquarters) and our London, England facility, our research operations are principally run out of leased spaces in San Diego, California; Columbia, Maryland; Atlanta, Georgia; [removed: Glasgow, Scotland;] and [removed: Paris, France.][added: Glasgow, Scotland.]

These locations include, among others, the following: Boston, Massachusetts; Chicago, Illinois; Los Angeles, California; Norcross, Georgia; and San Francisco, California.

These locations include, without limitation, the following: New York; Los Angeles; Chicago; San Francisco; Sacramento; Boston; Orange County, California; Philadelphia; Houston; Phoenix; Detroit; Pittsburgh; Miami; Orlando; Denver; Dallas; Kansas City; Cleveland; Cincinnati; Indianapolis; Austin; Salt Lake City; Las Vegas; Seattle; Portland; St. Louis; Louisville; Minneapolis; San Luis Obispo, California; Ontario, California; Charlotte; Durham, North Carolina; Manchester, England and Toronto, Canada.

| Year Ended December 31, [removed: 2013] [added: 2015] | | | | | | | |

As of February [removed: 2, 2015,] [added: 1, 2016,] there were [removed: 900] [added: 1,093] holders of record of our common stock.

We did not issue any unregistered securities during the year ended December 31, [removed: 2014.][added: 2015.]

The following table is a summary of our repurchases of common stock during each of the three months in the quarter ended December 31, [removed: 2014:][added: 2015:]

| Month, [removed: 2014] [added: 2015] | | Total Number of Shares Purchased | | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |

| October 1 through 31 | | [removed: 58] [added: 44] | | | [removed: $148.32] [added: $190.87] | | — | | — |

| • | An equal investment in the Standards & Poor's Stock 500 (“S&P 500”) Index; [added: and] |

| • | An equal investment in the S&P 500 Internet Software & Services [removed: Index; and] [added: Index.] |

The comparison covers the period beginning December 31, [removed: 2009,] [added: 2010,] and ending on December 31, [removed: 2014,] [added: 2015,] and assumes the reinvestment of any dividends.

[removed: You should note] [added: Note] that this performance is historical and is not necessarily indicative of future price performance.

[removed: ][added: ]

| Company / Index | | [removed: 12/31/09 | | |] 12/31/10 | | | 12/31/11 | | | 12/31/12 | | | 12/31/13 | | | 12/31/14 | | [added: | 12/31/15 | |]

| First Quarter | $ | 200.62 | | | $ | 169.95 | |

| Second Quarter | $ | 214.20 | | | $ | 193.36 | |

| Third Quarter | $ | 218.43 | | | $ | 164.53 | |

| Fourth Quarter | $ | 210.42 | | | $ | 170.07 | |

| December 1 through 31 | | 2,936 | | | 208.31 | | — | | — |

| Total | | 2,980 | (1) | | $208.05 | | — | | — |

| CoStar Group, Inc. | | 100 | | | 115.93 | | | 155.26 | | | 320.67 | | | 319.02 | | | 359.09 | |

| S&P 500 Index | | 100 | | | 102.11 | | | 118.45 | | | 156.82 | | | 178.29 | | | 180.75 | |

| S&P 500 Internet Software & Services Index | | 100 | | | 105.26 | | | 126.13 | | | 187.67 | | | 200.05 | | | 266.70 | |

| First Quarter | $ | 109.46 | | | $ | 89.28 | |

| Second Quarter | $ | 129.51 | | | $ | 105.73 | |

| Third Quarter | $ | 170.09 | | | $ | 131.03 | |

| Fourth Quarter | $ | 186.62 | | | $ | 161.29 | |

| December 1 through 31 | | 3,273 | | | 167.10 | | — | | — |

| Total | | 3,331 | (1) | | $166.78 | | — | | — |

| CoStar Group, Inc. | | 100 | | | 137.80 | | | 159.76 | | | 213.96 | | | 441.90 | | | 439.62 | |

| S&P 500 Index | | 100 | | | 115.06 | | | 117.49 | | | 136.30 | | | 180.44 | | | 205.14 | |

| S&P 500 Internet Software & Services Index | | 100 | | | 102.56 | | | 107.95 | | | 129.36 | | | 192.46 | | | 205.16 | |

The following table provides selected consolidated financial and other operating data for the five years ended December 31, [removed: 2014.][added: 2015.]

The consolidated statement of operations data shown below for each of the three years ended December 31, [removed: 2012,] 2013, [added: 2014,] and [removed: 2014] [added: 2015] and the consolidated balance sheet data as of December 31, [removed: 2013 and] 2014 [added: and 2015] are derived from audited consolidated financial statements that are included in this report.

The consolidated statement of operations data for each of the years ended December 31, [removed: 2010 and] 2011 and [added: 2012 and] the consolidated balance sheet data as of December 31, [removed: 2010,] 2011, [added: 2012,] and [removed: 2012] [added: 2013] shown below are derived from audited consolidated financial statements for those years that are not included in this report.

| Consolidated Statement of Operations Data: | [removed: 2010 | | | |] 2011 | | | | 2012 | | | | 2013 | | | | 2014 | | | [added: | 2015 | | |]

| Revenues | $ | [removed: 226,260] [added: 251,738] | | | $ | [removed: 251,738] [added: 349,936] | | | $ | [removed: 349,936] [added: 440,943] | | | $ | [removed: 440,943] [added: 575,936] | | | $ | [removed: 575,936] [added: 711,764] | |

| Cost of revenues | [removed: 83,599 | | | |] 88,167 | | | | 114,866 | | | | 129,185 | | | | 156,979 | | | [added: | 188,885 | | |]

| Gross margin | [removed: 142,661 | | | |] 163,571 | | | | 235,070 | | | | 311,758 | | | | 418,957 | | | [added: | 522,879 | | |]

| Operating expenses | [removed: 119,886 | | | |] 141,800 | | | | 207,630 | | | | 257,604 | | | | 338,079 | | | [added: | 511,424 | | |]

| Income from operations | [removed: 22,775 | | | |] 21,771 | | | | 27,440 | | | | 54,154 | | | | 80,878 | | | [added: | 11,455 | | |]

| Interest and other income | [removed: 735 | | | |] 798 | | | | 526 | | | | 326 | | | | 516 | | | [added: | 537 | | |]

| Interest and other expense | — | | | | [removed: —] [added: (4,832] | | [added: )] | | [removed: (4,832] [added: (6,943] | | ) | | [removed: (6,943] [added: (10,481] | | ) | | [removed: (10,481] [added: (9,411] | | ) |

| Income before income taxes | [removed: 23,510 | | | |] 22,569 | | | | 23,134 | | | | 47,537 | | | | 70,913 | | | [added: | 2,581 | | |]

| Income tax expense, net | [removed: 10,221 | | | |] 7,913 | | | | 13,219 | | | | 17,803 | | | | 26,044 | | | [added: | 6,046 | | |]

| Net income [added: (loss)] | $ | [removed: 13,289] [added: 14,656] | | | $ | [removed: 14,656] [added: 9,915] | | | $ | [removed: 9,915] [added: 29,734] | | | $ | [removed: 29,734] [added: 44,869] | | | $ | [removed: 44,869] [added: (3,465] | [added: )] |

| Net income [added: (loss)] per share — basic | $ | [removed: 0.65] [added: 0.63] | | | $ | [removed: 0.63] [added: 0.37] | | | $ | [removed: 0.37] [added: 1.07] | | | $ | [removed: 1.07] [added: 1.48] | | | $ | [removed: 1.48] [added: (0.11] | [added: )] |

| Net income [added: (loss)] per share — diluted | $ | [removed: 0.64] [added: 0.62] | | | $ | [removed: 0.62] [added: 0.37] | | | $ | [removed: 0.37] [added: 1.05] | | | $ | [removed: 1.05] [added: 1.46] | | | $ | [removed: 1.46] [added: (0.11] | [added: )] |

| Weighted average shares outstanding — basic | [removed: 20,330 | | | |] 23,131 | | | | 26,533 | | | | 27,670 | | | | 30,215 | | | [added: | 31,950 | | |]

| Weighted average shares outstanding — diluted | [removed: 20,707 | | | |] 23,527 | | | | 26,949 | | | | 28,212 | | | | 30,641 | | | [added: | 31,950 | | |]

| Consolidated Balance Sheet Data: | [removed: 2010 | | | |] 2011 | | | | 2012 | | | | 2013 | | | | 2014 | | | [added: | 2015 | | |]

| Cash, cash equivalents, short-term and long-term investments | $ | [removed: 239,316] [added: 573,379] | | | $ | [removed: 573,379] [added: 177,726] | | | $ | [removed: 177,726] [added: 277,943] | | | $ | [removed: 277,943] [added: 544,163] | | | $ | [removed: 544,163] [added: 437,325] | |

| Working capital | [removed: 188,279 | | | |] 521,401 | | | | 97,925 | | | | 196,913 | | | | 480,521 | | | [added: | 337,452 | | |]

| Stockholders’ equity | [removed: 381,502 | | | |] 659,177 | | | | 826,343 | | | | 927,862 | | | | 1,513,546 | | | [added: | 1,543,780 | | |]

Business." The total assets and total long-term liabilities reported in the consolidated balance sheet data have been reclassified to conform to our current presentation as a result of the retrospective application of the authoritative guidance to simplify the presentation of debt issuance costs.

| Total assets | 770,117 | | | | 1,155,583 | | | | 1,250,440 | | | | 2,070,483 | | | | 2,079,571 | | |

| Total long-term liabilities | 49,158 | | | | 230,536 | | | | 213,674 | | | | 440,982 | | | | 400,510 | | |

Business."

| Total assets | 439,648 | | | | 771,035 | | | | 1,165,139 | | | | 1,256,982 | | | | 2,083,682 | | |

| Total long-term liabilities | 7,252 | | | | 50,076 | | | | 237,158 | | | | 217,567 | | | | 450,846 | | |

As of December 31, [removed: 2014,] [added: 2015,] we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at [removed: the] [added: a] reasonable assurance level.

In connection with the preparation of the Company's annual financial statements, management of the Company has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2014] [added: 2015] based on criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO Framework”).

Based on this assessment, management did not identify any material weakness in the Company's internal control, and management has concluded that the Company's internal control over financial reporting was effective as of December 31, [removed: 2014.][added: 2015.]

On June 1, 2015, we completed the acquisition of Apartment Finder.

As permitted by the Securities and Exchange Commission, we have elected to exclude the accounts receivable and revenue of Apartment Finder from our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015.

All other account balances were integrated into our control environment.

The excluded financial position of Apartment Finder represented approximately 0.1% of our total assets at December 31, 2015, and approximately 5.7% of our total revenue for the year ended December 31, 2015.

We will include the internal controls of Apartment Finder accounts receivable and revenue in our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016.

The remaining information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2015] [added: 2016] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2015] [added: 2016] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2015] [added: 2016] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2015] [added: 2016] annual meeting of stockholders.

The information required by this Item is incorporated by reference to our Proxy Statement for our [removed: 2015] [added: 2016] annual meeting of stockholders.

Years Ended December 31, [removed: 2012,] 2013, [added: 2014,] and [removed: 2014] [added: 2015] (in thousands):

Pursuant to the requirements of Section 13 of the Securities Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia, on the [removed: 26th] [added: 25th] day of February [removed: 2015.][added: 2016.]

Florance and [removed: Brian J.][added: Scott T.]

[removed: Radecki,] [added: Wheeler,] and each of them individually, as their true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto and to all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herein by ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

| /s/ Michael R. Klein | | Chairman of the Board | | February [removed: 26, 2015] [added: 25, 2016] |

| /s/ Andrew C. Florance | | Chief Executive Officer and | | February [removed: 26, 2015] [added: 25, 2016] |

| /s/ [removed: Brian J. Radecki] [added: Scott T. Wheeler] | | Chief Financial Officer | | February [removed: 26, 2015] [added: 25, 2016] |

| [removed: Brian J. Radecki] [added: Scott T. Wheeler] | | (Principal Financial and Accounting Officer) | | |

| /s/ David [removed: Bonderman] [added: J. Steinberg] | | Director | | February [removed: 26, 2015] [added: 17, 2016] |

| /s/ Michael J. Glosserman | | Director | | February [removed: 22, 2015] [added: 23, 2016] |

| /s/ Warren H. Haber | | Director | | February [removed: 24, 2015] [added: 18, 2016] |

| /s/ John W. Hill | | Director | | February [removed: 22, 2015] [added: 25, 2016] |

| /s/ Christopher J. Nassetta | | Director | | February [removed: 23, 2015] [added: 17, 2016] |

| 2.1 | | Agreement and Plan of Merger, dated as of April 27, [removed: 2011,] [added: 2015,] by and among CoStar [removed: Group,] [added: Realty Information,] Inc., [removed: Lonestar Acquisition Sub, Inc.] [added: Orange, LLC, Network Communications, Inc.,] and [removed: LoopNet, Inc.] [added: Shareholder Representative Services LLC] (Incorporated by reference to Exhibit 2.1 to the [removed: Registrant’s] [added: Registrant's] Current Report on Form 8-K filed with the Commission on April [removed: 28, 2011).] [added: 29, 2015).] |

| *10.16 | | CoStar Group, Inc. [added: Amended and Restated] Employee Stock Purchase [removed: Plan, as amended] [added: Plan] (Incorporated by reference to Exhibit [removed: 10.14] [added: 4.4] to the Registrant’s [removed: Report] [added: Registration Statement] on Form [removed: 10-K for] [added: S-8 filed with] the [removed: year ended December 31, 2010).] [added: Commission on September 14, 2015).] |

| [removed: 10.23] [added: 10.20] | | Form of Indemnification Agreement between the Registrant and each of its officers and directors (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2004). |

| [removed: 10.26] [added: 10.21] | | Deed of Office Lease by and between GLL L-Street 1331, LLC and CoStar Realty Information, Inc., dated February 18, 2011, and made effective as of June 1, 2010 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on form 10-Q for the quarter ended March 31, 2011). |

| [removed: 10.27] [added: 10.23] | | Credit [removed: Agreement] [added: Agreement,] dated [removed: February 16, 2012,] [added: as of April 1, 2014,] by and among [removed: the Registrant,] [added: CoStar Group, Inc.,] as Borrower, CoStar Realty Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.1 to [removed: the Registrant's] [added: CoStar’s Current] Report on Form [removed: 10-Q for the quarter ended March 31, 2012).] [added: 8-K, filed April 4, 2014).] |

| [removed: 10.28] [added: 10.24] | | [removed: First] Amendment [removed: dated as of April 25, 2012,] [added: No. 1] to the Credit Agreement [removed: dated as of February 16, 2012,] [added: by and] among [removed: the Registrant,] CoStar [added: Group, Inc., as Borrower, CoStar] Realty Information, Inc., [added: as Co-Borrower,] the Lenders [removed: from time to time] party thereto and JPMorgan Chase [removed: Bank] [added: Bank,] N.A., as Administrative Agent (Incorporated by [removed: referenced] [added: reference] to Exhibit [removed: 10.2] [added: 10.1] to [removed: the Registrant's] [added: CoStar’s] Current Report on Form [removed: 8-K] [added: 8-K,] filed [removed: April 30, 2012).] [added: June 5, 2015).] |

| [removed: 10.29] [added: 10.22] | | Asset Purchase Agreement, dated as of February 28, 2014, by and between Classified Ventures, LLC and CoStar Group, Inc. (Incorporated by reference to Exhibit 10.1 to CoStar’s Current Report on Form 8-K, filed March 3, 2014). |

| 101 | | The following materials from CoStar Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, [removed: 2014,] [added: 2015,] formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statement of Operations for the years ended December 31, [removed: 2012, 2013] [added: 2013, 2014] and [removed: 2014,] [added: 2015,] respectively; (ii) Consolidated Statements of Comprehensive Income [added: (Loss)] for the years ended December 31, [removed: 2012, 2013] [added: 2013, 2014] and [removed: 2014,] [added: 2015,] respectively; (iii) Consolidated Balance Sheets at December 31, [removed: 2013] [added: 2014] and December 31, [removed: 2014,] [added: 2015,] respectively; (iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, [removed: 2012, 2013] [added: 2013, 2014] and [removed: 2014,] [added: 2015,] respectively; (v) Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2012, 2013] [added: 2013, 2014] and [removed: 2014,] [added: 2015,] respectively; (vi) Notes to the Consolidated Financial Statements that have been detail tagged; and (vii) Schedule II – Valuation and Qualifying Accounts (submitted electronically with this report). |

| Reports of Independent Registered Public Accounting Firm | [removed: [F-2](#s84847B18F1FBA562921D66C977538277)] [added: [F-2](#s7D57CD8D726B0CD3DCF6B8FFC9D4AAD9)] |

| Consolidated Statements of Operations for the years ended December 31, [removed: 2012, 2013 and] [added: 2013,] 2014 [added: and 2015] | [removed: [F-4](#sA330DAE6CFD01D61EFE166C953CCBB8E)] [added: [F-4](#s4F7633ACA631AA2A31C4B8FFA8DC6C93)] |

| Consolidated Statements of Comprehensive Income [added: (Loss)] for the years ended December 31, [removed: 2012, 2013 and] [added: 2013,] 2014 [added: and 2015] | [removed: [F-5](#s704C0C2C1EE9B2C8061166C953EB4CA7)] [added: [F-5](#s27913BBE09E15FFB4AA2B8FFA90BCBA6)] |

| Consolidated Balance Sheets as of December 31, [removed: 2013 and] 2014 [added: and 2015] | [removed: [F-6](#s10B9652A48CFEE4E6B4F66C953EBA1B6)] [added: [F-6](#s46A3D9FBAC2B4AFAF345B8FFA8CCECD6)] |

| Consolidated Statements of Stockholders’ Equity for the years ended December 31, [removed: 2012, 2013 and] [added: 2013,] 2014 [added: and 2015] | [removed: [F-7](#s82417701F4472AAB590F66C9541AFCC4)] [added: [F-7](#s3B84E9C083E53C816FEBB8FFA87ECA7F)] |

| Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2012, 2013 and] [added: 2013,] 2014 [added: and 2015] | [removed: [F-8](#sB9B989D497A4F02DB59666C954499D01)] [added: [F-8](#s4543FD5EF82FB6B67A56B8FFA850BB54)] |

| Notes to Consolidated Financial Statements | [removed: [F-9](#s50B99623869AA7B918D166C9786CDB7E)] [added: [F-9](#s161F1EB1149380D1251EB8FFCADD1CAB)] |

We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. as of December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the related consolidated statements of operations, comprehensive [removed: income,] [added: income (loss),] stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2014.][added: 2015.]

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CoStar Group, Inc. at December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2014,] [added: 2015,] 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), CoStar Group, Inc.'s internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February [removed: 26, 2015] [added: 25, 2016] expressed an unqualified opinion thereon.

We have audited CoStar Group, Inc.’s internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, CoStar Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2014,] [added: 2015,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CoStar Group, Inc. as of December 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] and the related consolidated statements of operations, comprehensive [removed: income,] [added: income (loss),] stockholders' equity and cash flows for each of the three years in the period ended December 31, [removed: 2014] [added: 2015 of CoStar Group, Inc.] and our report dated February [removed: 26, 2015] [added: 25, 2016] expressed an unqualified opinion thereon.

| | [removed: 2012] [added: 2013] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2014] [added: 2015] | | |

| Revenues | $ | [removed: 349,936] [added: 440,943] | | | $ | [removed: 440,943] [added: 575,936] | | | $ | [removed: 575,936] [added: 711,764] | |

| Cost of revenues | [removed: 114,866] [added: 129,185] | | | | [removed: 129,185] [added: 156,979] | | | | [removed: 156,979] [added: 188,885] | | |

| Gross margin | [removed: 235,070] [added: 311,758] | | | | [removed: 311,758] [added: 418,957] | | | | [removed: 418,957] [added: 522,879] | | |

| Selling and marketing | [removed: 84,113] [added: 98,708] | | | | [removed: 98,708] [added: 150,305] | | | | [removed: 150,305] [added: 302,226] | | |

| Software development | [removed: 32,756] [added: 46,757] | | | | [removed: 46,757] [added: 55,426] | | | | [removed: 55,426] [added: 65,760] | | |

| Year ended December 31, 2015 | | $ | 4,815 | | | $ | 7,002 | | | $ | 1,470 | | | $ | 5,809 | | | $ | 7,478 | |

| 10.25 | | Form of Voting Agreement, by and among CoStar Realty Information, Inc. and the funds and accounts managed by Beach Point Capital Management LP (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on April 29, 2015). |

February 25, 2016

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Network Communications, Inc. related to accounts receivable and revenues, which are included in 2015 consolidated financial statements of CoStar Group, Inc. and constituted 0.1% of total assets as of December 31, 2015 and 5.7% of revenues for the year then ended.

Our audit of internal control over financial reporting of CoStar Group, Inc. also did not include an evaluation of the internal control over financial reporting of Network Communications, Inc.

February 25, 2016

| Cash and cash equivalents | $ | 527,012 | | | $ | 421,818 | |

| Total current assets | 596,476 | | | | 472,733 | | |

| Deferred income taxes, net | — | | | | 9,107 | | |

| Total assets | $ | 2,070,483 | | | $ | 2,079,571 | |

| Current portion of long-term debt | $ | 16,665 | | | $ | 16,746 | |

| Deferred rent | — | | | | 1,687 | | |

| Total current liabilities | 115,955 | | | | 135,281 | | |

| Long-term debt, less current portion | 355,136 | | | | 338,366 | | |

| Total liabilities | 556,937 | | | | 535,791 | | |

| Total liabilities and stockholders’ equity | $ | 2,070,483 | | | $ | 2,079,571 | |

| Net loss | — | | | — | | | | — | | | | — | | | | (3,465 | | ) | | (3,465 | | ) |

| Exercise of stock options | 60 | | | 1 | | | | 5,068 | | | | — | | | | — | | | | 5,069 | | |

| Balance at December 31, 2015 | 32,509 | | | $ | 325 | | | $ | 1,440,321 | | | $ | (7,594 | ) | | $ | 110,728 | | | $ | 1,543,780 | |

| Net income (loss) | $ | 29,734 | | | $ | 44,869 | | | $ | (3,465 | ) |

December 31, 2015

On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, useful lives of property and equipment and intangible assets, recoverability of long-lived assets and intangible assets with definite lives, goodwill, income taxes, fair value of equity instruments, fair value of auction rate securities, accounting for business combinations and contingencies, among others.

The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable, including assumptions as to future events.

These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenue and expenses.

Reclassifications

Certain previously reported amounts in the consolidated balance sheets as of December 31, 2014 and Note 12 have been reclassified to conform to the Company's current presentation as a result of the retrospective application of the authoritative guidance to simplify the presentation of debt issuance costs.

Additionally, certain previously reported amounts in Note 10 have been reclassified to conform to the Company's current presentation within the reconciliation of the Company’s provision for income taxes and the amount computed at the statutory federal income tax rate.

Advertising costs include e-commerce, television, radio, print and other media advertising.

In March 2015, the Compensation Committee of the Board of Directors of the Company approved grants of restricted common stock to the executive officers that vest based on the Company’s achievement of a three-year cumulative revenue goal established at the grant date, and are subject to forfeiture in the event the foregoing performance condition is not met by December 31, 2017.

The Company holds cash at major financial institutions that often exceed Federal Deposit Insurance Corporation insured limits.

The Company believes its credit risk is minimal.

The Company manages its credit risk associated with cash concentrations by concentrating its cash deposits in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions holding such deposits.

The Company estimates the fair value of its existing indefinite-lived intangible assets using the relief from royalty method that includes significant assumptions and estimates including the Company's discount rate, revenue growth rate and royalty rate.

Assumptions about the discount rate are based on a weighted average cost of capital for comparable companies.

Assumptions about the revenue growth rate are based on the Company's forecasts, business plans and economic projections.

Assumptions about the royalty rate are based on royalty agreements for comparable companies with similar intangible assets.

Intangible assets are reviewed for impairment at least annually, and more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill and Intangible Assets — (Continued)

Acquired intangible assets characterized as customer base consists of acquired customer contracts and the related customer relationships and are amortized over periods ranging from ten years to thirteen years.

These amounts are reflected in the consolidated balance sheets as a direct deduction from a combination of the current and long-term portion of debt.

| Year ended December 31, 2012 | | $ | 2,524 | | | $ | 1,456 | | | $ | 475 | | | $ | 1,520 | | | $ | 2,935 | |

| | | |

| --- | --- | --- |

| | | | | |

| David Bonderman | | | | |

| /s/ David J. Steinberg | | Director | | February 23, 2015 |

| Exhibit No. | | Description |

| 2.2 | | Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 20, 2011, among LoopNet, Inc., the Registrant and Lonestar Acquisition Sub, Inc. (Incorporated by referenced to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed May 23, 2011). |

INDEX TO EXHIBITS — (CONTINUED)

| *10.20 | | Executive Service Contract dated February 16, 2007, between Property Investment Exchange Limited and Paul Marples (Incorporated by reference to Exhibit 10.14 to the Registrant’s Report on Form 10-K for the year ended December 31, 2007). |

| *10.21 | | Leaving Agreement dated February 27, 2013, between CoStar U.K. Limited and Paul Marples (Incorporated by reference to Exhibit 10.19 to the Registrant's Report on Form 10-K for the year ended December 31, 2012). |

| *10.22 | | Separation Agreement and General Release dated October 6, 2013, between CoStar Realty Information, Inc. and Jennifer Kitchen (Incorporated by reference to Exhibit 10.22 to the Registrant's Report on Form 10-K for the year ended December 31, 2013). |

| 10.24 | | Agreement for Lease between CoStar UK Limited and Wells Fargo & Company, dated August 25, 2009 (Incorporated by reference to Exhibit 10.26 to the Registrant’s Report on Form 10-K for the year ended December 31, 2009). |

| 10.25 | | Sub-Underlease between CoStar UK Limited and Wells Fargo & Company, dated November 18, 2009 (Incorporated by reference to Exhibit 10.28 to the Registrant’s Report on Form 10-K for the year ended December 31, 2009). |

| 10.30 | | Credit Agreement, dated as of April 1, 2014, by and among CoStar Group, Inc., as Borrower, CoStar Realty Information, Inc., as Co-Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.1 to CoStar’s Current Report on Form 8-K, filed April 4, 2014). |

February 26, 2015

| Total current assets | 308,466 | | | | 599,811 | | |

| Total assets | $ | 1,256,982 | | | $ | 2,083,682 | |

| Total current liabilities | 111,553 | | | | 119,290 | | |

| Income taxes payable | 4,809 | | | | 4,703 | | |

| Total liabilities | 329,120 | | | | 570,136 | | |

| Total liabilities and stockholders’ equity | $ | 1,256,982 | | | $ | 2,083,682 | |

| Balance at December 31, 2011 | 25,426 | | | $ | 254 | | | $ | 637,816 | | | $ | (8,568 | ) | | $ | 29,675 | | | $ | 659,177 | |

| Net income | — | | | — | | | | — | | | | — | | | | 9,915 | | | | 9,915 | | |

| Exercise of stock options | 273 | | | 2 | | | | 9,194 | | | | — | | | | — | | | | 9,196 | | |

| Consideration for LoopNet | 1,880 | | | 19 | | | | 137,036 | | | | — | | | | — | | | | 137,055 | | |

| Cash and cash equivalents at beginning of year | 545,280 | | | | 156,027 | | | | 255,953 | | |

As of December 31, 2013 and 2014, cash of approximately $105,000 and $0, respectively, was held to support letters of credit for security deposits.

The impairment loss is measured based on a projected discounted cash flow method using a discount rate determined by the Company’s management to be commensurate with the risk in its current business model.

The acquired intangible asset characterized as customer base consists of one distinct intangible asset composed of acquired customer contracts and the related customer relationships.

Product development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized.

Costs are capitalized, to the extent that the capitalizable costs do not exceed the realizable value of such costs, until the product is available for general release to customers.

The Company defines the establishment of technological feasibility as the completion of all planning, designing, coding and testing activities that are necessary to establish products that meet design specifications including functions, features and technical performance requirements.

These capitalized product development costs are included in intangible and other assets in the Company’s consolidated balance sheets.

Amortization is computed using a straight-line method over the remaining estimated economic life of the product, typically three to five years after the software is ready for its intended use.

| 3. | ACQUISITION |

| | | | |

| --- | --- | --- | --- |

The Company's consolidated revenue for the year ended December 31, 2014, included $76.8 million from the Apartments.com Business.

The Company's consolidated income before income taxes for the year ended December 31, 2014, included a $23.9 million loss before income taxes from the Apartments.com Business.