Excerpts from the Year 2 annual report of Air Products
Excerpts from the Year 2 annual report of Air Products and Chemicals, Inc., follow. The income statement and balance sheet are condensed but the note entitled “Summarized Financial Information of Equity Affiliates” is shown in its entirety.
The note provides information on several joint ventures that Air Products has entered into—primarily to incinerate municipal solid waste and generate electricity.

Summarized Financial Information of Equity Affiliates
The following table presents summarized financial information on a combined 100% basis of the principal companies accounted for by the equity method. Amounts presented include the accounts of the following equity affiliates: Stockton CoGen Company (50%); Pure Air on the Lake, L.P. (50%); Bangkok Cogeneration Company Limited (48.8%); Daido Air Products Electronics, Inc. (49%); Sapio Produzione Idrogeno Ossigeno S.r.L. (49%); INFRA Group (40%); Air Products South Africa (50%); Bangkok Industrial Gases Company Ltd. (50.6%); INOX Air Products Limited (INOX) (49.4%); APP GmbH in WPS GmbH & CoKG (20%); DuPont Air Products Nanomaterials, LLC (50%); Island Pipeline Gas (33%); Tyczka Industrie-Gases GmbH (50%); and principally other industrial gas producers. In the fourth quarter of Year 2, the company obtained control of San Fu after increasing its ownership interest from 48% to 70%. In the fourth quarter of Year 1, the company sold its 50% interest in Cambria CoGen Company and Orlando CoGen Limited. Amounts presented reflect the accounts of these companies for the periods during which the equity method was applied.

The company’s share of income of all equity affiliates for Year 2, Year 1, and Year 0 was $88.7, $91.1 and $99.6, respectively. These amounts exclude $12.5, $9.9, and $12.0 of related net expenses incurred by the company. Dividends received from equity affiliates were $42.0, $44.9, and $49.7 in Year 2, Year 1 and Year 0, respectively.
The investment in net assets of and advances to equity affiliates at 30 September Year 2 and Year 1 included investment in foreign affiliates of $449.5 and $465.9, respectively.
As of 30 September Year 2 and Year 1, the amount of investment in companies accounted for by the equity method included goodwill in the amount of $69.6 and $77.2, respectively. Goodwill is no longer amortized, as discussed in Note 1.

1. What are some reasons companies give to justify entering into joint ventures?
2. Using the information provided, estimate what the effect on Air Products’ return-on- assets ratio and debt-to-equity ratio would have been if its proportionate share of the joint ventures had been included as individual assets and liabilities on the consolidated balance sheet. For this purpose, use a 35% tax rate, and assume that Air Products’ proportionate ownership in these equity affiliates averaged45%.
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