Note 17. Derivatives

Foreign Currency Exposure

Because we operate in a number of international markets, we are exposed to the impact of foreign currency exchange rate (“FX”) movements on earnings, particularly with respect to the U.S. dollar versus the euro. Our aggregate foreign currency transaction losses for fiscal year ended April 26, 2013 was $304,000. Our aggregate foreign currency losses for fiscal year ended April 27, 2012 exclusive of foreign currency hedging results was $1,841,000. Our aggregate foreign currency gains for fiscal year ended April 29, 2011 exclusive of foreign currency hedging results was $1,093,000. See the table below for the results of our hedging activity. At times we enter into foreign currency forward contracts to partially offset our foreign currency exchange gains and losses. As a result of the settlement of our euro-based trade receivables due from our European subsidiary, Cyberonics Europe BVBA, and the simultaneous investment in the subsidiary during the quarter ended January 27, 2012, we have not entered into a foreign currency derivative during fiscal year 2013; however, in the future we may hedge our exposure to foreign currency transactions. During the fiscal year ended April 27, 2012, we entered into foreign currency forward contracts with nominal amounts totaling €31.5 million, with a maximum nominal amount outstanding at any one time of €11.5 million. During the fiscal year ended April 29, 2011, we entered into contracts with nominal amounts totaling €24.3 million, with a maximum amount outstanding at any one time of €8.3 million.

The pre-tax net gain resulting from FX derivatives included in the consolidated statement of income were as follows:



Derivative	Location of gain (loss) recognized in income	52 Weeks Ended April 26, 2013	52 Weeks Ended April 27, 2012	52 Weeks Ended April 29, 2011
Euro forward contracts found in Other Income (Expense)	Other Expense, Net	0	1,194,550	(1,563,237)

Warrants’ Liability

In September 2005, in conjunction with the issuance of $125 million of senior subordinated convertible notes, all of which have been retired as of September 27, 2012, we sold warrants for $25.2 million to Merrill Lynch International. The warrants were recorded in common stock warrants on our consolidated balance sheets. The warrants entitled the holder to receive the net value for the purchase of 3,012,050 shares of our common stock for the amount in excess of $50.00 per share. The warrant agreement was amended during the quarter ended October 26, 2012, and as a result, a portion of the common stock warrants were reclassed to warrants’ liability at a fair value of $3.6 million. At the quarter ended October 26, 2012, we revalued the warrants’ liability at $2.3 million, and recorded a Gain on Warrants’ Liability of $1.3 million in the consolidated statement of net income. The warrants were settled during the quarter ended January 25, 2013, refer to “Note 9. Warrants” for further information.