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Exhibit 99.1
GAPSHARE
TABLE OF CONTENTS
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INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
AND FOR THE YEARS THEN ENDED:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-7
SUPPLEMENTAL SCHEDULES AS OF DECEMBER 31, 1999
AND FOR THE YEAR THEN ENDED:
Schedule of Assets Held for Investment Purposes as of December 31, 1999 8
Supplemental schedules not listed above have been omitted because of the absence
of conditions under which they are required.
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Deloitte & Touche
Deloitte & Touche LLP Telephone: (415) 247-4000
50 Fremont Street Facsimile: (415) 247-4320
San Francisco, California 94105-2230
INDEPENDENT AUDITORS' REPORT
To the Administrative Committee and Participants of
GapShare:
We have audited the accompanying statements of net assets available for benefits
of GapShare (the "Plan") as of December 31, 1999 and 1998, and the related
statements of changes in net assets available for benefits for the years then
ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan at December 31, 1999
and 1998, and the changes in its net assets available for benefits for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
Table of Contents is presented for the purpose of additional analysis and is not
a required part of the basic financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This schedule is the responsibility of the Plan's management. Such
schedule has been subjected to the auditing procedures applied in our audit of
the basic 1999 financial statements and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic financial statements
taken as a whole.
/s/ Deloitte & Touche LLP
June 2, 2000
Deloitte Touche
Tohmatsu
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GAPSHARE
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
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1999 1998
ASSETS:
Uninvested principal cash $ 27,531 $ 1,946
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Investments, at fair value:
Registered investment funds:
IDS Cash Management Fund 19,951,493 14,318,324
IDS Bond Fund 12,107,098 11,224,680
IDS Growth Fund 107,905,820 77,205,076
AET Equity Index II Fund 15,576,652 3,182,089
Franklin Small Capital Growth Fund 31,086,772 14,113,547
Domini Social Equity Fund 19,021,515 11,764,243
Janus Worldwide Fund 17,168,289 4,353,973
AET Money Market I 5,320,066 2,331,410
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Total Registered Investment Funds 228,137,705 138,493,342
Common stock:
The Gap, Inc. common stock 314,764,752 279,774,844
Participant loans 17,306,436 13,835,808
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Total investments at fair value 560,208,893 432,103,994
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Accrued interest receivables 16,606 9,265
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NET ASSETS AVAILABLE FOR BENEFITS $560,253,030 $432,115,205
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The accompanying notes are an integral part of these financial statements.
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GAPSHARE
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1999 AND 1998
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<CAPTION>
1999 1998
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ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Net appreciation in fair value of registered investment funds $ 53,177,589 $ 13,000,335
Net appreciation in fair value of The Gap Inc.common stock 61,510,085 169,154,105
Dividends and interest 5,871,705 6,948,502
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Total investment income 120,559,379 189,102,942
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Contributions:
Employer 15,343,972 12,800,420
Participants and others 30,110,900 22,493,559
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Total contributions 45,454,872 35,293,979
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Total additions 166,014,251 224,396,921
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO
BENEFITS PAID TO PARTICIPANTS 37,876,426 33,150,974
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NET INCREASE 128,137,825 191,245,947
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 432,115,205 240,869,258
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End of year $560,253,030 $432,115,205
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The accompanying notes are an integral part of these financial statements.
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GAPSHARE
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
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1. DESCRIPTION OF PLAN
GapShare (the "Plan") is a defined contribution plan which was established
to provide a source of retirement savings to participants and to enable
participants to defer a portion of their compensation. The following brief
description of the Plan is provided for general information purposes only.
Participants should refer to the Summary Plan Description and official Plan
documents for more complete information.
The Plan qualifies under sections 401(a), 401(k) and 501(a) of the Internal
Revenue Code of 1986. Full time and part time employees of The Gap, Inc.
(the "Company") and its subsidiaries are eligible to participate in the
Plan upon attaining the age of twenty-one and after one year of employment
with the Company completing a minimum of 1,000 hours of service.
The minimum level of participant contributions is 1% of total compensation
on a pre-tax or after-tax basis. Total contributions may not exceed a
maximum of 16% of total compensation on a pre-tax basis or 21% of total
compensation on an after-tax basis. The maximum allowable contributions
qualifying for deferral for individual income tax purposes was $10,000 for
the years ended December 31, 1999 and 1998.
Company contributions are made according to a matching formula established
prior to the beginning of each Plan year. For 1999 and 1998, the formula
provided for $1 of Company contributions for each $1 of participant basic
contributions, up to a maximum of 4% of the participants total compensation
on a pre-tax or after-tax basis. A participant's aggregate annual
contribution may not exceed 25% of the participant's taxable compensation
for the year or $30,000, whichever is less.
Participants who earned greater than $80,000 in 1997 were not allowed to
contribute greater than a 6% combined pre-tax and after-tax contribution
during 1998. Effective January 1, 1999, the Plan adopted a Safe Harbor
amendment allowing all participants to defer up to 16% of total
compensation on a pre-tax basis or 21% of total compensation on an after-
tax basis. The maximum compensation allowable for Plan allocation purposes
was $160,000 for both years.
Investments of participant and Company contributions are allocated to the
funds as elected by the participant. Contribution allocations to the Gap
Stock Fund may not exceed 50% of total contributions. Allocations of each
fund's earnings are based on participant account balances in those funds.
Participants may transfer accumulated account balances between funds at any
time.
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Investment Options - Effective January 1, 1998, American Express Trust
Company was appointed Trustee.
At December 31, 1998 and 1999, the Plan's assets were invested in the
following funds:
. IDS Cash Management Fund - A money market fund that seeks maximum
current income consistent with liquidity and stability of principal by
investing in high-quality money market securities.
. IDS Bond Fund - A mutual fund that seeks to achieve current income and
preservation of capital. The fund invests mainly in high-quality
corporate bonds and U.S. government securities.
. IDS Growth Fund - A mutual fund that seeks long-term capital growth by
investing in a portfolio of common stocks of companies that have
above-average potential for long-term growth as a result of new
management, marketing opportunities or technological superiority.
. American Express Trust Equity Index II - A collective fund with the
objective to achieve a total rate of return as close as possible to
that of the S&P 500 Index.
. Franklin Small Cap Growth Fund - A mutual fund that seeks long-term
capital growth by investing primarily in companies in emerging growth
phases.
. Domini Social Equity Fund - A mutual fund that seeks long-term total
return corresponding with performance of the Domini Social index,
which consists of approximately 400 companies that meet certain social
criteria. The fund invests at least 80% of its assets in stocks in the
index. To construct the index, the fund adviser selects companies in
the S&P 500 Index based on social responsibility. The index also
typically includes about 150 companies not included in the S&P 500.
. Janus World Wide Fund - A diversified mutual fund that seeks long-term
capital growth by investing primarily in common stocks of foreign and
domestic companies. Janus World Wide Fund normally, but not always,
invests in issuers from at least five different countries, including
the United States.
. Gap Stock Fund - The Gap Stock Fund is invested in common shares of
The Gap, Inc., and a small amount of short-term investments. This fund
may provide the greatest potential for either loss or gain since it is
invested in the common stock of a single company. The Trustee buys
shares of Gap Stock in the open market. Shares are also purchased from
Plan participants who transfer their accounts out of the Gap Stock
Fund or who take distributions or withdrawals from the Gap Stock Fund
in the form of cash. At December 31, 1999 and 1998, the Gap Stock Fund
held 6,482,712 shares and 4,973,775 shares, respectively, of The Gap,
Inc. stock.
Vesting - Effective January 1, 1999, the Board of Directors approved the
immediate vesting of all active employees in all past and future employer
contributions. Participant contributions and earnings thereon are fully
vested. Prior to January 1, 1999, the first $600 of Company contributions
each year and earnings thereon were fully vested. Beyond the first $600,
Company contributions and earnings thereon were 20% vested after three
years of employee service. The portion vested increased by 20% for each
additional year of service. After seven years of service the Company
contributions were fully vested. Participants terminating before
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achieving seven years of service forfeited the nonvested portion. Amounts
forfeited were applied as a reduction of future employer contributions.
Participant Loans - Participants may apply to receive a loan up to the
lesser of 50% of their vested account or $50,000, minus the highest balance
of any other loan outstanding in the preceding 12 months. The minimum
participants may borrow is $1,000. Such loans are repaid through payroll
deductions for up to a period of five years, unless the loan is for the
purchase or construction of a principal residence, in which case terms
range from five to fifteen years. If an unpaid loan balance exists at the
time a participant leaves the Company and withdraws from the Plan, it must
be repaid by the participant or deducted from the participant's total
distribution. The fixed interest rate charged is 1% over the current prime
rate as stated in The Wall Street Journal, in effect at the time the loan
is made. Administrative fees charged to participants upon setup are $30 for
loans to be repaid within five years and $50 for loans with longer
repayment periods. As of December 31, 1999 there were 4,202 such loans,
with interest rates ranging from 7% to 11% maturing from 2000 to 2015.
Payment of Benefits - Upon termination of employment, a participant may
elect to have vested portions distributed either in a lump sum payment or,
if greater than $5,000, deferred until the participant is the age of sixty-
two. Deferred account balances may be invested in any of the funds, subject
to normal restrictions.
Administrative Expenses - The Plan's administrative expenses are paid by
the Company and are not included in the Plan's financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared
under the accrual method of accounting.
Investment Valuation and Income Recognition - The current fair value of
common stock is determined by the closing market quotation at the end of
the year. Pooled investment funds are valued by the trustee at fair market
value at the end of each plan year. Participant loans are carried at
amortized cost, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on an accrual basis. Dividends are recorded on
the ex-dividend date.
Payment of Benefits - Distributions to participants are recorded when paid.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of net assets
available for benefits and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
additions to and deductions from net assets available for benefits during
the reporting period. Actual results could differ from those estimates.
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New Accounting Pronouncement - In 1999, the Plan adopted Statement of
Position 99-3, Accounting for and Reporting of Certain Defined Contribution
Plan Investments and Other Disclosure Matters issued by the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants. Accordingly, previously required "by-fund" disclosures have
been eliminated.
3. TAX EXEMPT STATUS
The Plan qualifies as a profit sharing plan under Section 401(a) of the
Internal Revenue Code of 1986 (the "Code"), with a qualified cash or
deferred arrangement under Section 401(k) of the Code, and, accordingly,
the Plan's net investment income is exempt from income taxes. The Plan has
obtained a favorable tax determination letter from the Internal Revenue
Service dated September 15, 1998. The Plan sponsor believes that the Plan
continues to qualify for tax exempt status.
4. PLAN TERMINATION
The Plan is intended to be permanent; however, in the event of the earlier
of the termination of the Plan or the complete and permanent discontinuance
of contributions by the Company, the accounts of all participants shall
become fully vested and nonforfeitable. In the event of partial termination
of the Plan, the full value of the accounts of the participants involved in
the partial termination shall become fully vested and nonforfeitable. Upon
the occurrence of such an event, the assets of the Plan allocable to each
participant shall be segregated, liquidated and distributed to the
participants in proportion to their respective account balances.
*****
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GAPSHARE
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
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Identity of Issuer Description of Fair
or Borrower Investment Cost Value
IDS Cash Management Fund Money Market Fund $ 19,951,489 $ 19,951,493
IDS Bond Fund Mutual Fund,
2,543,508 shares 12,999,398 12,107,098
IDS Growth Fund Mutual Fund,
2,103,837 shares 72,085,086 107,905,820
American Express Trust Mutual Fund,
Equity
Index II 390,206 shares 13,301,679 15,576,652
Franklin Small Capital Mutual Fund,
Growth Fund
704,436 shares 17,097,525 31,086,772
Domini Social Equity Fund Mutual Fund,
454,082 shares 13,871,562 19,021,515
Janus World Wide Fund Mutual Fund,
224,628 shares 11,627,996 17,168,289
The Gap, Inc. common stock 6,842,712 shares 29,457,508 314,764,752
AET Money Market I Money Market Fund 5,320,066 5,320,066
Participant loans 4,202 loans with
interest
rates from 7% - 11%
maturing from 2000 to 17,306,436 17,306,436
2015 ------------ ------------
TOTAL $213,018,745 $560,208,893
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