New York, May U, 1922.
To the Stockholders and Bondholders of the

Hudson & Manhattan Railroad Company

The following report is submitted for the year ended December 31, 1921:

As stated in previous reports, the property of your Company was taken over by the Govern¬
ment, acting through the Director General of Railroads, on December 28, 1917, and continued under
Federal control to March 1, 1920. On June 4, 1919, an agreement was entered into with the Director
General of Railroads covering compensation and other matters involved in the taking over of the
property by the Government. The agreement provided that the Company should be paid an aggre¬
gate annual compensation of $3,003,362.77. On June 24, 1921, an agreement was entered into with
the Director General of Railroads for settlement of the claims of the Company, and under this agree¬
ment your Company received, over and above the compensation specified for rental, the sum of
$168,385.00 in settlement of its claim for under maintenance of the property while under Federal
control.

In the report for last year reference was made to the Company's acceptance of the provisions
of Section 209 of the Transportation Act, which guaranteed the operating income for the six months
immediately succeeding the termination of Federal control, the amount of the guaranty ($1,501,681.38)
being one-half the annual compensation fixed under the agreement with the Director General of Rail¬
roads. Statements setting forth the claims of the Company were duly filed during the year 1921.
However, the Interstate Commerce Commission has recently called upon all railroads having claims
relating to the guaranty period to file them in a revised form, and the claims of your Company are
now in process of preparation accordingly, and will be filed within a short time.

The burden of high taxes was still further increased during the year, the increase for 1921 on
the railroad property being $170,206.41, or 40.98% over 1920.

The continued growth of traffic necessitates additional cars. On December 30, 1921, order
was placed for 25 new cars of the same type as those now in service, to be delivered during the
early Fall of the current year. The cost of the new ears will be approximately $515,000 or $200,000
less than the cost of the same number of cars purchased in 1920.

A balance of 3% of cumulative interest remained unpaid at the date of the report for the
year 1920. At a meeting of your Board on July 28, 1921, an installment of interest, payable October
1, 1921, was declared, amounting to 2}4%, out of the surplus income for the six months ended June
30, 1921, thus still leaving a balance of 3% of cumulative interest unpaid, as of October 1, 1921. At
a meeting of the Board on February 2, 1922, an installment of interest, payable April 1, 1922, was
declared, amounting to 3}4%, which represented the regular 2^% semi-annual payment and an ad¬
ditional 1% on account of the interest previously accumulated and unpaid. There now remains,
therefore, 2% of accumulated interest unpaid.

The net income of your Company from railroad operations for the year 1921 was equal to
4.4% on the outstanding funded debt allocated to railroad operations.

Statement of Income, Balance Sheet, and other statistics are hereinafter submitted.

By order of the Board of Directors,

OREN ROOT,

President,