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) -- The 14-month decline in the U.S. dollar against major currencies is scary for Americans. The U.S. has always been proud of a strong currency, and a depreciating dollar makes everything we import more expensive. While it makes our exports more attractive, goods produced here and sold abroad account for a small part of the economy.



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, however, the falling dollar helps juice earnings. In the footnotes of its second-quarter regulatory filings, Atlanta-based Coke says it made an extra $1.1 billion abroad due to currency translations. To put that in perspective, Coke posted net income of $2.05 billion during the quarter. (The currency gain is theoretical, in that the company hasn't realized it on its income statement.)

The foreign-currency variable highlights a factor in Coke's business model that should serve the company well. International diversification has made the company resilient in the face of a weak American economy.

Besides currency-translation adjustments, Coke's investments in bottlers around the world have performed well. Excluding Coca-Cola Enterprises, bottling investments for the company have been assigned a fair value of more than $3 billion above the carrying value, the worth of an asset according to its balance-sheet account balance. The network has diversified Coke's revenue streams, making North America just another competitive front.

North America accounts for more than a quarter of revenue, only surpassed by bottling income, but it makes up only 19% of operating income, less than the European Union, Pacific region and Latin America do.


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, Coke's archrival, derives more than half of revenue and operating income from the U.S. Billionaire investor Warren Buffett favors Coke over Pepsi, incidentally. He owns 8.6% of the company, the most of any investor and about the same as the combined holdings of

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Some investors may not want to be exposed to so much currency risk, a valid concern. Coke hedges its foreign-currency flows, though, with the use of derivative contracts like swaps and futures. That allows Coke to benefit from diversification while taking a small amount of currency risk.

Derivatives also allow the company to stay neutral to fluctuations in commodity prices that may hurt profits. Since most of the products sold by Coke contain some sort of corn produce, such as high-fructose corn syrup, a sharp increase in the price of corn or other products used in production could quickly pile on costs while competitive forces may make it impossible to raise prices. Commodity futures nullify a good portion of that threat and allow the company to make better forecasts based on cash-flow projections that have fewer variables.

Coke clearly has more going on than simply selling soda. A multinational corporation like this one needs to be a master of many aspects of global business besides product development and marketing. Coke carries out this work extremely well and has turned it into a competitive advantage that investors should monitor as closely as they do revenue.

When Coke reports third-quarter earnings later this month, check its foreign activities, as the dollar continues to tumble. As a result, Coke's foreign-currency operations are becoming more valuable and create a bigger moat against the threat of competition. Buffett sure knows how to pick them.

-- Reported by David MacDougall in Boston.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.