Rally Software Development Corp

As further described under note 15, Subsequent Events, below, on May 27, 2015, we entered into an Acquisition Agreement (the Acquisition Agreement) with CA, Inc., a Delaware corporation (CA), and Grand Prix Acquisition Corp., a Delaware corporation and wholly owned subsidiary of CA (Purchaser). Pursuant to the Acquisition Agreement, and upon the terms and subject to the conditions thereof, Purchaser has agreed to commence a cash tender offer to acquire all of the shares of our common stock (the Offer).  Following the consummation of the Offer, the Acquisition Agreement provides that Purchaser will merge with and into us (the Merger) and we will become a wholly owned subsidiary of CA.

On April 15, 2015, the FASB issued ASU No. 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses under ASC 350-40. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance in this ASU supersedes paragraph 350-40-25-16 and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The adoption of this standard is not expected to have a material impact on our financial statements at this point in time.

On May 27, 2015, we entered into the Acquisition Agreement with CA and Purchaser.  Pursuant to the Acquisition Agreement, and upon the terms and subject to the conditions thereof, Purchaser has agreed to commence the Offer for a purchase price of $19.50 per share (the Offer Price). On May 27, 2015, both our Board of Directors and the board of directors of CA approved the terms of the Acquisition Agreement.  The consummation of the Offer will be conditioned on (i) at least a majority of the shares of the Company’s common stock having been validly tendered into and not withdrawn from the Offer, (ii) receipt by CA and Purchaser of certain regulatory approvals, (iii) the accuracy of the representations and warranties contained in the Acquisition Agreement, subject to certain qualifications, and (iv) other customary conditions. The Offer is not subject to a financing condition.

Following the consummation of the Offer, the Acquisition Agreement provides that Purchaser will merge with and into us in the Merger and we will become a wholly owned subsidiary of CA. In the Merger, each outstanding share of our common stock (other than shares owned by CA, us or Merger Sub or any of their or our direct or indirect wholly owned subsidiaries and shares with respect to which appraisal rights are properly exercised in accordance with Delaware law) will be converted into the right to receive the Offer Price. The consummation of the Merger is subject to certain closing conditions.

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in

this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended January 31, 2015 included in our Annual Report on Form 10-K dated as of, and filed with the Securities and Exchange Commission, or SEC, on April 7, 2015 (File No.001-35868) . This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements include our ability and the ability of Purchaser and CA to complete the transactions contemplated by the Acquisition Agreement, including the parties’ ability to satisfy the conditions to the consummation of the Merger, the possibility of any termination of the Acquisition Agreement and the timing of completion of the Merger. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, risks associated with uncertainties as to the timing and completion of the Merger, the risk that competing offers or acquisition proposals will be made, the possibility that various conditions to the consummation of the Merger may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Merger, the effects of disruption from the Offer and Merger on our business and the fact that the announcement and pendency of the Offer and Merger may make it more difficult to establish or maintain relationships with employees, customers and other business partners, the risk that any stockholder litigation in connection with the Merger may result in significant costs of defense, indemnification and liability and potential delay, other factors identified herein, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.