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As filed with the Securities and Exchange Commission on July 15, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 ___________________ FORM 20-F  ̈
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR ý
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2004
 OR  ̈
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from          to
 COMMISSION FILE NUMBERS
333-08322, 333-08322-01
___________________ TFM, S.A. de C.V.  N/A  Grupo Transportación Ferroviaria Mexicana, S.A. de C.V.  Mexican Railway Transportation Group  United Mexican States
(Jurisdiction of incorporation or organization) Av. Periférico Sur No. 4829, 4to Piso
Col. Parques del Pedregal
14010 México, D.F.
México
(Address of principal executive offices) __________________ Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class
None.
    
    Name of each exchange on which registered
Not applicable.
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None.




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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: TFM and Grupo TFM 10.25% Senior Notes due 2007 11.75% Senior Discount Debentures due 2009* Guarantees of 10.25% Senior Notes due 2007 Guarantees of 11.75% Senior Discount Debentures due 2009* TFM 12.50% Senior Notes due 2012   *     
There are no 11.75% Senior Discount Debentures due 2009 outstanding
nor is there a guarantee of such debentures since April 29, 2005.  The number of outstanding shares of each of the issuers classes of capital or common stock as
of December 31, 2004 was: TFM, S.A. de C.V.
    
    Grupo Transportación Ferroviaria Mexicana, S.A. de C.V.359,975,150
    
    Class I Series A Shares
    
    
    3,868,401
    
    
    Series A Shares204,691,752
    
    Class II Series A Shares
    
    
    3,716,699
    
    
    Series B Shares141,166,725
    
    Class III Series A Shares
    
    
    2,478,470
    
    
    Series L, Sub-Series L-2 Shares345,858,478
    
    Class I Series B Shares196,664,624
    
    Class II Series B Shares135,630,776
    
    Class III Series B Shares
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes ý No  ̈ Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17  ̈ Item 18 ý -ii-




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TABLE OF CONTENTS  
 PagePART IITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    6ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    6ITEM 3.
    
    KEY INFORMATION
    
    6ITEM 4.
    
    INFORMATION ON THE COMPANY
    
    19ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    45ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    67ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    73ITEM 8.
    
    FINANCIAL INFORMATION
    
    78ITEM 9.
    
    THE OFFER AND LISTING
    
    83ITEM 10.
    
    ADDITIONAL INFORMATION
    
    83ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    90ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    91PART IIITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    91ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    91ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    92ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    92ITEM 16B.
    
    CODE OF ETHICS
    
    92ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    93ITEM 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    93ITEM 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    93PART IIIITEM 17.
    
    FINANCIAL STATEMENTS
    
    93ITEM 18.
    
    FINANCIAL STATEMENTS
    
    94ITEM 19.
    
    EXHIBITS
    
    94Corporate By-lawsCorporate By-lawsAmendment to Sale Purchase AgreementFirst Amendmended and Restated Credit AgreementFirst Waiver and Amendment to the Credit AgreementStock Purchase AgreementAmended and Restated Acquisition AgreementList of SubsidiariesCertification of the Principal Executive OfficerCertification of the Principal Financial OfficerCertification of Principal Executive Officer & Principal Financial Officer
   
 In this annual report,
references to $, U.S.$, Dollars or
U.S. Dollars are to United States Dollars and
references to Ps. or Pesos are to Mexican Pesos. This annual report contains translations of
certain Peso amounts into Dollars at specified rates solely for the convenience of the reader.
These translations should not be construed as representations that the Peso amounts actually
represent such Dollar amounts or could be converted into Dollars at the rates indicated or at any
other rate. -iii-




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This report constitutes the annual report on Form 20-F for the fiscal year ended December 31,
2004 for each of TFM, S.A. de C.V.(we, us, our or TFM) and Grupo Transportación
Ferroviaria Mexicana, S.A. de C.V.(Grupo TFM and, as the context requires, together with TFM,
we, us or our). Grupo TFM owns all of the unrestricted voting shares of TFM, which represent
80.0% of the capital stock of TFM. Grupo TFM is a non-operating holding company with no material
assets or operations other than its investment in TFM and related party transactions with TFM which
are eliminated in the consolidation of Grupo TFMs financial statements. Except where otherwise
indicated, the disclosure presented in this annual report applies to both TFM and Grupo TFM. EXPLANATORY NOTE TFM, following discussions with PricewaterhouseCoopers, S.C., its independent public
accountants, in connection with the finalization of the audit of TFMs 2004 financial results, has
determined to reclassify on its balance sheet its long-term zero-coupon $593.4 million receivable
from Grupo TFM and an additional long-term receivable from Grupo TFM totaling $67.7 million from an
asset to a contra-equity account, in each case solely for purposes of its equity reconciliation
under United States generally accepted accounting principles, or U.S. GAAP. This reclassification
was not required with respect to any amounts under TFMs International Financial Reporting
Standards, or IFRS, financial statements. The impact of this reclassification is a reduction in TFMs consolidated stockholders equity
for U.S. GAAP reconciliation purposes at December 31, 2000, 2001, 2002, and 2003. In connection
with the reclassification, TFMs consolidated stockholders equity for U.S. GAAP reconciliation
purposes (i) at December 31, 2003 changed from $1,775 million to $1,114 million; (ii) at December
31, 2002 changed from $1,741 million to $1,079 million; (iii) at December 31, 2001 changed from
$1,904 million to $1,242 million and (iv) at December 31, 2000 changed from $1,812 million to
$1,150 million. The reclassifications have no impact on TFMs consolidated statements of income or
cash flows for any of the affected periods under IFRS or for purposes of U.S. GAAP reconciliation.
TFMs consolidated stockholders equity for U.S. GAAP reconciliation purposes at December 31, 2004
was $1,106 million. FORWARD-LOOKING STATEMENTS This annual report contains certain forward-looking statements within the meaning of Section
27A of the United States Securities Act of 1933, as amended, or the Securities Act, and Section 21E
of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act. These
forward-looking statements reflect our views with respect to our financial performance and future
events. All forward-looking statements contained herein are inherently uncertain. Actual results
could differ materially from those projected in the forward-looking statements as a result of
factors discussed herein. Many of these statements may be identified by the use of forward-looking
words such as believe, expect, could, anticipate, should, plan, estimate and
potential, among others. Readers are cautioned not to place reliance on these forward-looking
statements. The following factors, as well as other factors described in this report, could cause
actual results to differ materially from such forward-looking statements:  
    
    our ability to generate sufficient cash from operations to meet our obligations;
    
    our high degree of leverage;
    
    our potential need for and ability to obtain additional financing;
    
    our compliance with and obligations under the concession from the Mexican government; -1-




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
    
    our ability to successfully implement our business strategy, including the strategy
to convert customers from using trucking services to rail transportation services;
    
    the impact of competition, including competition from other rail carriers and
trucking companies in Mexico and the United States, or the U.S.;
    
    Mexican, U.S. and global economic, political and social conditions;
    
    the effects of the North American Free Trade Agreement, or NAFTA, on the level of
trade among Mexico, the U.S. and Canada;
    
    the settlement of the Mexican governments right to require Grupo TFM to purchase the
Mexican governments 20% equity interest in TFM retained by the Mexican government in
connection with our privatization, or the Mexican governments
put claim;
    
    uncertainties relating to negotiations with the Mexican
government in connection with our value added tax, or VAT, refund award;
    
    uncertainties relating to the Mexican governments audit of our 1997 tax returns and
possible effect on our tax returns for subsequent years;
    
    uncertainties regarding the litigation we face or may face in
the future;
    
    the transition to new operating management under control by Kansas City Southern, or
KCS, our new controlling shareholder;
    
    the effects of our employee training, technological improvements and capital
expenditures on labor productivity, operating efficiencies and service reliability;
    
    changes in legal or regulatory requirements in Mexico, the U.S. or Canada;
    
    fluctuations in the Peso  Dollar exchange rate;
    
    other factors described in this annual report. Forward-looking statements are only our current expectations and are based on our managements
beliefs and assumptions and on information currently available to our management. Such statements
are subject to risks and uncertainties, and actual results may differ materially from those
expressed or implied in the forward-looking statements as a result of various factors, including,
but not limited to, those identified under Item 3. Key InformationRisk Factors in this annual
report. These risks and uncertainties include factors relating to the Mexican economy, securities
and foreign exchange markets, which exhibit volatility and can be adversely affected by
developments in other countries, factors relating to the Mexican and international transportation
industry and changes in their regulatory environment, including material administrative and
judicial rulings, and factors relating to the highly competitive markets in which we operate.
Forward-looking statements speak only as of the date they are made, and we do not undertake any
obligation to update them in light of new information or future developments or to release publicly
any revisions to these statements in order to reflect later events or circumstances or to reflect
the occurrence of unanticipated events. -2-




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CERTAIN RECENT DEVELOPMENTS Change in Control and Loss of Foreign Private Issuer Status On April 1, 2005, KCS and Grupo TMM, S.A. de C.V., or Grupo TMM, completed a transaction under
which KCS acquired control of Grupo TFM through the purchase of shares of the common stock of Grupo
TFM belonging to Grupo TMM, representing a 48.5% economic interest (51% of the shares of Grupo TFM
entitled to full voting rights) for a purchase price of (i) $200 million in cash, (ii) 18,000,000
shares of the common stock of KCS, and (iii) a promissory note in the aggregate principal amount of
$47 million, payable subject to the terms of a certain escrow agreement. As a result of the acquisition, KCS has a controlling interest in Grupo TFM, consisting of
75.4% of the outstanding shares (100% of the shares of Grupo TFM entitled to full voting rights).
By virtue of Grupo TFMs ownership interest in TFM, KCS has a controlling interest in TFM. In
addition, upon resolution of the VAT refund claim and the Mexican governments put claim, KCS may
be obligated to pay Grupo TMM up to $110 million payable in a combination of cash and KCS common
stock. Grupo TMM is now a shareholder of KCS. As a consequence of the change in control, each of TFM and Grupo TFM has ceased to qualify as
a foreign private issuer for purposes of our reporting obligations to the Securities and Exchange
Commission, or SEC. Accordingly, although we are filing this annual report for fiscal year 2004 on
Form 20-F, we have begun filing current reports on Form 8-K, and will begin filing quarterly
reports on Form 10-Q (beginning with respect to our second fiscal quarter of 2005) and annual
reports on Form 10-K (beginning with respect to fiscal year 2005). Cash Tender Offer and Concurrent Consent Solicitation, and Call for Redemption On April 1, 2005, TFM commenced a cash tender offer for any and all outstanding $443,500,000
aggregate principal amount of its 11.75% Senior Discount Debentures due 2009, or the 2009
Debentures. On April 20, 2005, we accepted for purchase tenders equal to approximately $386.0
million principal amount of the 2009 Debentures. The tender offer expired on April 28, 2005.
Concurrently with the tender offer, TFM also solicited consents for amendments to the indenture
under which the 2009 Debentures were issued. The consent solicitation expired on April 14, 2005. TFM received the requisite consents to amend the indenture for the 2009 Debentures and thereby
eliminated substantially all of the restrictive covenants included therein and reduced the minimum
prior notice period with respect to a redemption date for outstanding 2009 Debentures from 30 days
to 3 days. TFM called for redemption its outstanding 2009 Debentures that were not tendered in
TFMs tender offer and on April 29, 2005, paid an aggregate of $59,970,989.47, including principal
and interest, to the holders of such 2009 Debentures. There are currently no 2009 Debentures
outstanding. Waiver and Amendment to Credit Agreement; Issuance of New Debt As
of April 18, 2005, TFM entered into a first waiver and amendment
to its credit agreement with the several banks party thereto and JPMorgan Chase Bank, N.A., as
administrative agent, or the Waiver and Amendment. The Waiver and Amendment is a waiver to and
amendment of our amended and restated credit agreement, dated as of June 24, 2004, among TFM, the
several banks party thereto and JPMorgan Chase Bank, N.A., or our amended and restated credit
agreement. -3-




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The
Waiver and Amendment allowed TFM to issue $460.0 million principal
amount of its 9 3/8% Senior Notes due 2012, or the 9 3/8%
Notes, in a principal amount in excess of the principal amount of 2009 Debentures outstanding and
to use the amount of proceeds from the private placement of the 9 3/8% Notes in excess of the
principal amount of the 2009 Debentures outstanding to pay accrued and unpaid interest on the 2009
Debentures repurchased or redeemed, pay the fees of the underwriter associated with the issuance of
the 9 3/8% Notes and the tender offer for the 2009 Debentures, pay the premium related to the
tender offer and to pay certain other expenses relating to the tender offer and the issuance of the
9 3/8% Notes. The Waiver and Amendment also amends the amended and restated credit agreement to
allow TFM to borrow up to $25 million from KCS on a fully subordinated basis. Value Added Tax Lawsuit We have filed a claim for the refund of Ps. 2,111 million (approximately $262 million) of VAT
paid in connection with the acquisition of the concession rights. On January 19, 2004 the Mexican Treasury delivered to us, pursuant to the August 13, 2003
ruling of the Tribunal Federal de Justicia Fiscal y Administrativa(Federal Tribunal of Fiscal and
Administrative Justice), or Fiscal Court, a VAT refund certificate representing the historical
claim amount of Ps. 2,111 million. On November 24, 2004, the Federal Court of the First Circuit,
or Federal Court, ordered the issuance of the VAT refund certificate to us including the effects of
inflation and interest on the amount originally claimed. This resolution is final and cannot be
appealed to a higher court. The Fiscal Court could not change, and did not change, the
interpretation of the resolution of the Federal Court in its resolution dated January 26,
2005. The Fiscal Court ordered the Mexican Treasury to issue to us a certificate including
inflation and interest. After applying the formula indicated in the resolution, the face value of
the certificate would be Ps. 12,375 million as of December 31, 2004 (approximately $1.1 billion). On February 18, 2005, a favorable written decision of the Fiscal Court carrying out the
mandate of the Federal Court dated November 24, 2004, recognized our legal right to receive not
only the original amount of VAT refund due from the Mexican Government (approximately Ps. 2,111
million), but also an amount representing inflation and interest on
the original amount since 1997. In its written decision,
the Fiscal Court stated that our legal right to receive the fully
adjusted VAT refund was expressly
established in the Federal Courts prior decision in this case, issued on June 11, 2003. In
implementing the June 11, 2003 and November 24, 2004 Federal Court decisions, the Fiscal
Court ordered the federal tax authorities to make the VAT refund to us through a single certificate
issued in our name, and to refund through that certificate the original amount of the VAT refund
due, adjusted for inflation and interest from the date the tax authorities should have made the
refund in 1997, until the date that the refund certificate is actually delivered to us. The Fiscal
Court also vacated its prior decisions in this matter. We have not yet received the VAT refund from the federal tax authorities and are currently in
discussions with such tax authorities relating to this matter. As of December 31, 2004, no gain has been reflected in our
financial statements for financial reporting purposes. 1997 Tax Audit On January 20, 2004, the Servicio de Administración Tributaria(the Mexican Fiscal
Administration Service, or SAT) issued a provisional attachment of
the VAT refund certificate,
stating that the documents that support the value of the VAT refund certificate do not comply with
applicable tax requirements. In the preliminary findings, the SAT noted that we, . . . wrongfully
declared a VAT receivable for Ps. 2,111 million, which in the Companys opinion refers to expenses
that do not comply with fiscal requirements, and therefore, are not deductible. In our view, TFM
did not prove its VAT -4-




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claim with corresponding documentation, which incorporates fiscal requisites as to the
identity of the taxpayer, its tax identification code, address of the seller and buyer of the
assets in question, and the VAT shown as separate from the principal . . . and, as a result, the
VAT cannot be credited. We believe the claim has no merits and as of this date, no tax liability
has been levied against us. On March 16, 2005, we were notified by the SAT that it had finished its audit of our 1997 tax
returns. The SAT has not yet assessed any penalties or taxes against us as a result of this audit.
As a part of the conclusion of the audit, the SAT confirmed its provisional attachment of the
VAT refund certificate, which had been delivered to us on January 19, 2004. Recent Commercial Lawsuit On December 3, 2004, the Mexican government filed a commercial lawsuit against TFM, Grupo TFM,
Grupo TMM and KCS in a Mexican federal civil court. In the lawsuit, the Mexican government
requested a finding from the court as to whether the defendants had complied with all of their
legal obligations during the process of privatization of our predecessor, Ferrocarriles Nacionales
de México, en Liquidación, or FNM. TFM, Grupo TFM and Grupo TMM appealed the service of process at
the federal appeals level. The court initially refused to accept the claims asserted by the
Mexican government, but later agreed to consider the above claim, although rejecting the Mexican
governments request to provisionally attach the VAT refund certificate or any other certificate the
Federal Treasury may issue in the future. Upon agreeing to consider the claim, under Mexican law,
the court should have had the defendants served a second time. Nonetheless, the court did not
proceed accordingly. TFM, Grupo TFM and Grupo TMM filed several successful claims alleging
improper service. The Mexican government appealed the courts findings in favor of TFM, Grupo TFM
and Grupo TMM. Although the appeal continues, the court has undertaken to serve the defendants for
a second time. KCS was also named as a defendant, and was improperly served at the address of
Grupo TMM. All the defendants filed objections to the effect that such notification was invalid on
the grounds that KCS does not have an address in Mexico, and that the Mexican government should
have served KCS at its corporate address in the United States. We believe that this suit is
without merit and that we have fully satisfied our legal obligations relating to the privatization
of TFM. However, there can be no assurance that we or the other defendants will prevail. -5-




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PART I 
 ITEM 1.          IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. 
 ITEM 2.          OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 ITEM 3.          KEY INFORMATION A.          SELECTED FINANCIAL DATA The following tables present our selected historical financial data for the years ended
December 31, 2000, 2001, 2002, 2003 and 2004. We derived the selected financial data below for the
years ended December 31, 2002, 2003 and 2004 from our financial statements on which
PricewaterhouseCoopers, S.C., our independent accountants, have reported and which are included
elsewhere in this annual report, with the exception of the balance sheet data for 2002, which was
derived from our audited combined and consolidated financial statements which are not included in
this annual report. We derived the selected financial data below for the years ended December 31,
2000 and 2001 from our audited combined and consolidated financial statements which are not
included in this annual report and which were prepared to be consistent with our financial
statements for the years ended December 31, 2002, 2003 and 2004. The selected audited financial
data should be read in conjunction with Item 5. Operating and Financial Review and Prospects and
the financial statements and notes included elsewhere in this annual report. Our financial statements have been prepared in accordance with IFRS, which differ in certain
material respects from U.S. GAAP. See Note 18 to our financial statements for a description of the
principal differences between IFRS and U.S. GAAP as they relate to us and a reconciliation to U.S.
GAAP of net income and stockholders equity. TFM Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands of Dollars)Results of Operations Data:Amounts Under IFRSTransportation revenues
    
    $
    695,425
    
    
    $
    720,627
    
    
    $
    712,140
    
    
    $
    698,528
    
    
    $
    699,224Costs and expenses
    
    
    530,569
    
    
    
    570,500
    
    
    
    557,671
    
    
    
    565,371
    
    
    
    572,205Other expenses (income)
    
    
    22,870
    
    
    
    (35,172
    )
    
    
    20,883
    
    
    
    35,883
    
    
    
    6,438Operating income
    
    
    141,986
    
    
    
    185,299
    
    
    
    133,586
    
    
    
    97,274
    
    
    
    120,581Interest income
    
    
    2,234
    
    
    
    4,510
    
    
    
    4,974
    
    
    
    1,509
    
    
    
    514Interest expense
    
    
    109,736
    
    
    
    87,009
    
    
    
    101,722
    
    
    
    112,641
    
    
    
    111,973Exchange (loss) gainnet
    
    
    (1,435
    )
    
    
    2,819
    
    
    
    (17,508
    )
    
    
    (13,744
    )
    
    
    435Income (loss) before provision for income taxes
    
    
    33,030
    
    
    
    104,704
    
    
    
    20,599
    
    
    
    (27,320
    )
    
    
    9,598Net income (loss) for the year
    
    $
    50,814
    
    
    $
    102,154
    
    
    $
    (11,350
    )
    
    $
    (61,044
    )
    
    $
    25,346Operating income per share
    
    
    0.1026
    
    
    
    0.1339
    
    
    
    0.0965
    
    
    
    0.0703
    
    
    
    0.0871Net income (loss) per year per share (1)
    
    
    0.0367
    
    
    
    0.0738
    
    
    
    (0.0082
    )
    
    
    (0.0441
    )
    
    
    0.0183
 -6-




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Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands of Dollars)Other Financial Data (under IFRS):Depreciation and amortization
    
    $
    76,626
    
    
    $
    78,345
    
    
    $
    81,401
    
    
    $
    85,403
    
    
    $
    87,225Capital expenditures
    
    
    66,918
    
    
    
    85,245
    
    
    
    89,355
    
    
    
    73,121
    
    
    
    41,143Net cash provided by (used in) Operating activities
    
    
    176,701
    
    
    
    120,052
    
    
    
    125,250
    
    
    
    99,664
    
    
    
    85,693Investing activities
    
    
    (59,765
    )
    
    
    (83,233
    )
    
    
    (295,288
    )
    
    
    (70,731
    )
    
    
    (13,576
    )Financing activities
    
    
    (99,427
    )
    
    
    (29,383
    )
    
    
    159,681
    
    
    
    (55,585
    )
    
    
    (61,468
    )Balance Sheet Data (at end of period; under IFRS unless
noted):Total assets (3)
    
    $
    2,790,459
    
    
    $
    2,941,667
    
    
    $
    2,801,576
    
    
    $
    2,724,293
    
    
    $
    2,664,695Total debt and capital lease obligations (2)
    
    
    803,033
    
    
    
    827,005
    
    
    
    992,999
    
    
    
    943,811
    
    
    
    887,122Total liabilities
    
    
    912,650
    
    
    
    961,704
    
    
    
    1,153,144
    
    
    
    1,137,287
    
    
    
    1,052,812Common stock,
1,383,987,505 shares, without par value, authorized,
issued and outstanding
    
    
    1,758,882
    
    
    
    1,758,882
    
    
    
    1,758,882
    
    
    
    1,758,882
    
    
    
    1,758,882Total stockholders equity
    
    $
    1,877,809
    
    
    $
    1,979,963
    
    
    $
    1,648,516
    
    
    $
    1,587,472
    
    
    $
    1,612,818Amounts under U.S. GAAPStockholders equity (at end of the year as
restated)(3)
    
    $
    1,150,442
    
    
    $
    1,242,325
    
    
    $
    1,079,237
    
    
    $
    1,113,759
    
    
    $
    1,105,651Net (loss) income for the year
    
    
    53,563
    
    
    
    91,919
    
    
    
    136,655
    
    
    
    34,161
    
    
    
    (8,102
    )Net (loss) income for the year per share (1)
    
    
    0.0387
    
    
    
    0.0664
    
    
    
    0.0987
    
    
    
    0.0247
    
    
    
    (0.0058
    )
 
 (1)
    
    The weighted average number of shares outstanding for all years was
1,383,987,505. Basic and fully diluted shares were the same for all periods presented.(2)
    
    Includes short and long term debt.(3)
    
    Stockholders equity under U.S. GAAP as of December 31, 2003, 2002, 2001
and 2000 has been restated to reflect the reclassification from an asset to a contra-equity
the amount related to the long-term notes receivable from Grupo TFM to liabilities of $661.1
million, $661.4 million, $661.2 million and 661.2 million, respectively. As a result,
stockholders equity under U.S. GAAP for each of the years then ended was reduced by such
amounts. The reclassification had no impact on our net income under U.S. GAAP for any of
these periods. See Note 18 to our financial statements. Grupo TFM Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands of Dollars, except per share data)Amounts under IFRSResults of Operations Data:Transportation revenues
    
    $
    695,425
    
    
    $
    720,627
    
    
    $
    712,140
    
    
    $
    698,528
    
    
    $
    699,225Costs and expenses
    
    
    531,720
    
    
    
    571,651
    
    
    
    558,822
    
    
    
    566,522
    
    
    
    573,355Other (income) expenses
    
    
    21,555
    
    
    
    (36,487
    )
    
    
    20,524
    
    
    
    35,664
    
    
    
    6,438Operating income
    
    
    142,150
    
    
    
    185,463
    
    
    
    132,794
    
    
    
    96,342
    
    
    
    119,432Interest expense
    
    
    109,739
    
    
    
    87,009
    
    
    
    101,722
    
    
    
    112,641
    
    
    
    111,973Interest income
    
    
    2,238
    
    
    
    4,510
    
    
    
    4,974
    
    
    
    1,509
    
    
    
    514Exchange (loss) gainnet
    
    
    (1,424
    )
    
    
    2,783
    
    
    
    (17,411
    )
    
    
    (13,695
    )
    
    
    429(Loss) income before provision for income
taxes and minority interest
    
    
    33,206
    
    
    
    104,832
    
    
    
    19,904
    
    
    
    (28,203
    )
    
    
    8,443(Loss) income before minority interest
    
    
    51,474
    
    
    
    102,180
    
    
    
    (10,329
    )
    
    
    (61,093
    )
    
    
    23,637Net (loss) income for the year
    
    $
    41,311
    
    
    $
    81,749
    
    
    $
    (7,988
    )
    
    $
    (48,939
    )
    
    $
    18,568Operating income per share
    
    
    14.1252
    
    
    
    18.4291
    
    
    
    14.7368
    
    
    
    12.7015
    
    
    
    15.7456Net (loss) income for the year per share(1)
    
    $
    4.1050
    
    
    $
    8.1233
    
    
    $
    (0.8865
    )
    
    $
    (6.4520
    )
    
    $
    2.4480
 -7-




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Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands of Dollars, except per share data)Other Financial Data:Depreciation and amortization
    
    $
    77,777
    
    
    $
    79,496
    
    
    $
    82,552
    
    
    $
    86,554
    
    
    $
    88,375Capital expenditures
    
    
    66,918
    
    
    
    85,245
    
    
    
    89,355
    
    
    
    73,121
    
    
    
    41,143Net cash provided by (used in)Operating
activities
    
    
    176,707
    
    
    
    132,547
    
    
    
    112,746
    
    
    
    99,664
    
    
    
    85,692Investing activities
    
    
    (59,765
    )
    
    
    (83,233
    )
    
    
    (295,288
    )
    
    
    (70,731
    )
    
    
    (13,576
    )Financing activities
    
    
    (99,427
    )
    
    
    (29,383
    )
    
    
    (159,681
    )
    
    
    (55,585
    )
    
    
    (61,468
    )Balance Sheet Data (at end of period):Total assets
    
    $
    2,182,899
    
    
    $
    2,334,137
    
    
    $
    2,195,107
    
    
    $
    2,118,252
    
    
    $
    2,057,411Total debt and capital lease obligations(2)
    
    
    803,033
    
    
    
    827,005
    
    
    
    992,999
    
    
    
    943,811
    
    
    
    887,122Total liabilities
    
    
    912,655
    
    
    
    961,713
    
    
    
    1,153,144
    
    
    
    1,137,372
    
    
    
    1,052,895Common stock authorized, issued and
outstanding(3)
    
    
    807,008
    
    
    
    807,008
    
    
    
    807,008
    
    
    
    807,008
    
    
    
    807,008Total stockholders equity
    
    $
    894,683
    
    
    $
    976,432
    
    
    $
    712,344
    
    
    $
    663,405
    
    
    $
    681,973Amounts under U.S. GAAPStockholders equity (at end of period)
    
    $
    841,780
    
    
    $
    915,341
    
    
    $
    785,872
    
    
    $
    813,186
    
    
    $
    804,840Net (loss) income for the period
    
    
    43,512
    
    
    
    73,561
    
    
    
    110,184
    
    
    
    27,314
    
    
    
    (8,346
    )Net (loss) income for the period per share(1).
    
    $
    4.3237
    
    
    $
    7.3096
    
    
    $
    12.2276
    
    
    $
    3.6010
    
    
    
    ($1.1003
    )
 
 (1)
    
    The weighted average number of shares outstanding was 10,063,570 in 2000
and 2001, 9,011,069 in 2002 and 7,585,100 in 2003 and 2004 for Grupo TFM. Basic and fully
diluted shares were the same for all periods presented.(2)
    
    Includes short- and long-term debt.(3)
    
    The number of shares, without par value, authorized, issued and
outstanding was 10,063,570 in 2000 and 2001, 9,011,069 in 2002 and 7,585,100 in 2003 and 2004. Exchange Rates The following table sets forth, for the periods indicated, the high, low, average period end
and period end noon buying rates for the purchase and sale of Dollars, expressed in Pesos per
Dollar. On June 30, 2005, the noon buying rate was Ps. 10.77 per Dollar. The rates shown below
are in nominal Pesos that have not been restated in constant currency units. No representation is
made that the Peso amounts referred to in this annual report could have been or could be converted
into Dollars at any particular rate or at all. Year/Month-end
    
    
    PeriodYear Ended December 31,
    
    High
    
    
    Low
    
    
    Average
    
    
    End2000
    
    
    10.09
    
    
    
    9.18
    
    
    
    9.46
    
    
    
    9.622001
    
    
    9.97
    
    
    
    8.95
    
    
    
    9.34
    
    
    
    9.162002
    
    
    10.43
    
    
    
    9.00
    
    
    
    9.68
    
    
    
    10.432003
    
    
    11.41
    
    
    
    10.11
    
    
    
    10.79
    
    
    
    11.242004
    
    
    11.63
    
    
    
    11.82
    
    
    
    11.29
    
    
    
    11.15December 2004
    
    
    11.29
    
    
    
    11.11
    
    
    
    11.20
    
    
    
    11.15January 2005
    
    
    11.41
    
    
    
    11.17
    
    
    
    11.26
    
    
    
    11.20February 2005
    
    
    11.20
    
    
    
    11.04
    
    
    
    11.14
    
    
    
    11.09March 2005
    
    
    11.33
    
    
    
    10.98
    
    
    
    11.16
    
    
    
    11.18April 2005
    
    
    11.23
    
    
    
    11.04
    
    
    
    11.11
    
    
    
    11.08May 2005
    
    
    11.03
    
    
    
    10.89
    
    
    
    10.98
    
    
    
    10.91June 2005
    
    
    10.88
    
    
    
    10.76
    
    
    
    10.82
    
    
    
    10.77July 2005
(through July 11)
    
    
10.80
    
    
    
10.70
    
    
    
10.75
    
    
    
10.70
 
 Source:
    
    Federal Reserve Bank of New York. -8-




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B.          CAPITALIZATION AND INDEBTEDNESS Not applicable. C.          REASONS FOR THE OFFER AND USE OF PROCEEDS Not applicable. D.          RISK FACTORS Risk Factors Relating to Our Debt Our substantial indebtedness could adversely affect our financial position and our ability to meet
our obligations under our debt securities. We have a substantial amount of debt and significant debt service obligations. As of December
31, 2004, TFM had total outstanding indebtedness of $887.1 million, consisting of (i) $1.6 million
of secured indebtedness, (ii) $750.4 million of unsecured indebtedness, (iii) $131.0 million of
term loan indebtedness outstanding under our amended and restated credit agreement and accrued
interest of $4.1 million. The term loan indebtedness ranks at least pari passuwith our other
unsecured indebtedness. TFMs stockholders equity was $1,612.8 million as of December 31, 2004,
resulting in a debt to equity ratio of 0.55. Grupo TFMs stockholders equity was $682.0 million
as of December 31, 2004, resulting in a debt to equity ratio of 1.30. Our substantial indebtedness could interfere with our ability to pay interest and principal on
our debt and may have important consequences for our operations and capital expenditure
requirements, including the following:  
    
    we will have to dedicate a substantial portion of our cash flow from operations to
the payment of principal, premium, if any, and interest on our debt, which will reduce
funds available for other purposes;
    
    we may not be able to fund capital expenditures, working capital and other corporate
requirements;
    
    we may not be able to obtain additional financing, or to obtain it at acceptable
rates;
    
    our ability to adjust to changing market conditions and to withstand competitive
pressures could be limited, and we may be vulnerable to additional risk if there is a
downturn in general economic conditions or our business;
    
    we may be exposed to risks in exchange rate fluctuations, because any fluctuation of
the Peso relative to the Dollar could impact our ability to service debt; and
    
    we may be at a competitive disadvantage compared to our competitors that have less
leverage and greater operating and financing flexibility than we do.   -9-




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Failure to comply with restrictive covenants in our existing contractual arrangements could
accelerate our repayment obligations under our debt. The indentures relating to our outstanding debt securities and our amended and restated credit
agreement contain a number of restrictive covenants, and any additional financing arrangements we
enter into may contain additional restrictive covenants. Our amended and restated credit agreement
contains covenants that are more restrictive than those contained in the indentures relating to our
securities, including, but not limited to, certain financial covenants which require us to maintain
specified financial ratios. These covenants restrict or prohibit many actions, including, but not
limited to, our ability to incur debt, create or suffer to exist liens, make prepayments of
particular debt, pay dividends, make investments, engage in transactions with stockholders and
affiliates, issue capital stock, sell certain assets, and engage in mergers and consolidations or
in sale-leaseback transactions. As a result of the covenants and restrictions contained in the indentures and in our amended
and restated credit agreement, we are limited in how we conduct our business and we may be unable
to compete effectively or to take advantage of new business opportunities. Any breach of these
covenants could result in a default under the indentures and our amended and restated credit
agreement. We cannot assure you that we will be able to remain in compliance with these covenants in the
future and, if we fail to do so, that we will be able to obtain waivers from the appropriate
parties and/or amend the covenants. At the same time, there are exceptions to many of these
covenants, and we cannot assure you that the limitations described above will protect you in all
circumstances. We have sought waivers under our amended and restated credit agreement and may require additional
waivers in the future. We did not meet certain required maintenance covenants regarding financial ratios under our
previous credit agreement for each of the three quarters ended September 30, 2003, December 31,
2003 and March 31, 2004. Accordingly, we have sought and received waivers and an amendment from
the lenders under our previous credit agreement for such non-compliance. In addition, we recently
entered into the Waiver and Amendment, see Item 5. Operating and Financial Review and
ProspectsLiquidity and Capital Resources ̄Amendment to TFMs Credit Agreement and Refinancing of
TFMs Commercial Paper Program ̄Waiver and Amendment to Credit Agreement. It is possible that,
depending on our operational performance and financial condition, we may require additional waivers
in the future. If such waivers are not obtained, we could be in default under our amended and
restated credit agreement and such default could result in acceleration of amounts due under our
term loan facility and in cross-defaults under other obligations. Risk Factors Relating to Our Business We have experienced recent losses and expect to experience losses in the future. We experienced net losses of $11.4 million for the year ended December 31, 2002 and $61.0
million for the year ended December 31, 2003. The net losses were attributable to, among other
things, the economic downturn in both the U.S. and Mexico in 2002 and 2003, the devaluation of the
Peso and weakness in the automotive industry. In addition, our results of operations were impacted
by deferred income tax expenses in the amount of $32.0 million and $34.1 million for the years
ended December 31, 2002 and 2003, respectively. Although we realized net income in 2004 of $25.3
million, we cannot assure you that we will be able to sustain profitability in the future. See
Item 5. Operating and Financial Review and Prospects ̄Operating Results ̄Result of Operations. -10-




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We may not be successful at reducing our operating costs and increasing our operating efficiencies. We must continue to reduce our operating costs and increase our operating efficiencies to
achieve further cost savings in future periods.We cannot assure you that we will be able to
achieve all of the cost savings that we expect to realize from current initiatives. In particular,
we may be unable to implement one or more of our initiatives successfully or we may experience
unexpected cost increases that offset the savings that we achieve. Our failure to realize cost
savings may adversely affect our results of operations. The Mexican government may revoke or limit our concession under a number of circumstances. We operate under a 50-year concession granted by the Mexican government to provide freight
transportation over the Northeast Rail Lines. The Mexican government may terminate the concession
if, among other things, there is an unjustified interruption of the operation of our rail lines, we
charge tariffs higher than the tariffs we have registered, we restrict the ability of other Mexican
rail operators to use our rail lines, we fail to make payments for damages caused during the
performance of services, we fail to comply with any term or condition of the Ley Reglamentaria del
Servicio Ferroviario(Law Regulating Railroad Services, or Mexican railroad services law and
regulations), or we fail to maintain an obligations compliance bond and the insurance coverage
specified in the Mexican railroad services laws and regulations. In addition, the concession
revokes automatically in the event we change our nationality or we assign, or create any lien on,
the concession without the Ministry of Transportations approval. Under the concession, we have the right to operate our rail lines, but we do not own the land,
roadway or associated structures. If the Mexican government legally terminates the concession,
such public domain assets used in the operation of our rail lines would be owned, controlled and
managed by the Mexican government. The Mexican government may also temporarily seize control of
our rail lines and our assets in the event of a natural disaster, war, significant public
disturbances, or imminent danger to the domestic peace or economy. In such a case, the Ministry of
Transportation may restrict our ability to exploit the concession fully for such time and in such
manner as the Ministry of Transportation deems necessary under the circumstances, but only for the
duration of any of the foregoing events. Mexican law requires that the Mexican government pay us compensation if it effects a statutory
appropriation for reasons of the public interest. With respect to a temporary seizure due to any
cause other than international war, the Mexican railroad services law and regulations provides that
the Mexican government will indemnify an affected concessionaire for an amount equal to damages
caused and losses suffered. However, these payments may not be sufficient to compensate us for our
losses and may not be timely made. Failure to make capital expenditures could result in the revocation of our concession and adversely
affect our financial condition. Our business is capital intensive and requires substantial ongoing expenditures for, among
other things, improvements to roadway, structures, technology, acquisitions, leases and repair of
equipment and maintenance of our rail system. Our failure to make necessary capital expenditures
could impair our ability to service our existing customers or accommodate increases in traffic
volumes. In addition, our railroad concession from the Mexican government requires us to make
ongoing investments and undertake capital projects in accordance with successive five-year business
plans approved by the Mexican government. We have funded, and expect to continue to fund, capital expenditures with funds from operating
cash flows and, to a lesser extent, vendor financing. We may not be able to generate sufficient
cash flows from our operations or obtain sufficient funds from external sources to fund our capital
expenditure requirements. If financing is available, it may not be obtainable on terms acceptable
to us and within the limitations -11-




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contained in the indentures and other agreements relating to our debt. If we are unable to
complete our planned capital improvements projects, our ability to service our existing customers
or accommodate increases in our traffic volumes may be limited or impaired and our business plan
commitments with the Mexican government may be at risk, requiring us to seek waivers to the
business plan. We may defer capital expenditures with respect to such business plan with the
permission of the Ministry of Transportation. However, the Ministry of Transportation might not
grant this permission, and our failure to comply with our commitments in our business plan could
result in the Mexican government revoking the concession. We cannot assure you that the Mexican
government would grant us such waivers. If such waivers are not obtained and our concession is
revoked, this would adversely affect our financial condition. Significant competition from other railroads could adversely affect our financial condition. We face significant competition in some industry segments from other railroads, in particular
Ferrocarril Mexicano, S.A. de C.V., or Ferromex, the operator of the Pacific-North Rail Lines,
which are in close proximity to our rail lines. In particular, we have experienced and continue to
experience competition from Ferromex with respect to the transport of grain, minerals and steel
products. The rail lines operated by Ferromex run from Guadalajara and Mexico City to four U.S.
border crossings west of the Nuevo Laredo-Laredo crossing, providing an alternative to our routes
for the transport of freight from those cities to the U.S. border. In addition, Ferromex directly
competes with us in some areas of our service territory, including Tampico, Saltillo, Monterrey and
Mexico City. Ferrocarril del Sureste, S.A. de C.V., or Ferrosur, which operates the Southeast Rail
Lines, competes directly with us for traffic to and from southeastern Mexico. Ferrosur, like us,
also serves Mexico City, Puebla and Veracruz. Ferromex and Ferrosur may have greater financial resources than us, which among other things,
may give them greater ability to reduce freight prices. Price reductions by competitors would make
our freight services less competitive, and we cannot assure you that we would be able to match
these rate reductions. In recent years, we have experienced aggressive price competition from
Ferromex in freight rates for agricultural products, which has adversely affected our results of
operations. Our ability to respond to competitive measures by decreasing our prices without
adversely affecting our gross margins and operating results will depend on, among other things, our
ability to reduce our operating costs. Our failure to respond to competitive pressures, and
particularly price competition, in a timely manner could have a material adverse effect on our
financial condition. In recent years, there has also been significant consolidation among major North American rail
carriers. The resulting merged railroads may attempt to use their size and pricing power to affect
our access to efficient gateways and routing options that are currently and have been historically
available. We cannot assure you that further consolidation will not have an adverse effect on our
financial condition. Significant competition from trucks could adversely affect our financial condition. We also face significant competition from trucks. In the past, the trucking industry has
significantly eroded the railroads market share of Mexicos total overland freight transportation
by providing effective rate and service competition. Trucking requires substantially smaller
capital investments and maintenance expenditures than railroads and allows for more frequent and
flexible scheduling. In addition, Mexican truckers are able to deliver to points in the U.S. under
relaxed NAFTA rules. We cannot assure you that we will not lose business in the future due to our
inability to respond to competitive pressures by decreasing our prices without adversely affecting
our gross margins and operational results. A material part of our projected revenue growth during the next few years is expected to
result from increased truck-to-rail traffic conversion. There can be no assurance that we will have
the ability to continue to convert traffic from truck to rail transport or that we will retain the
customers that we have already -12-




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converted. If the railroad industry, in general, and we, in particular, are unable to preserve
competitive advantages vis-à-vis the trucking industry, our business plan may not be achieved and
our financial condition could be adversely affected. A significant percentage of our transportation revenues has historically been derived from the
automotive industry, which has had difficulties in recent years. Our transportation revenues derived from the transport of automotive products has declined to
$119.8 million in 2004 from $154.1 million in 2002. General Motors, DaimlerChrysler and Ford Motor
Co. were among our most significant customers, together representing approximately 15.9% of our
total revenues in 2004. Our automotive revenues in 2004 decreased due to the continued recession in
the U.S. automotive industry and the lack of demand for those automobile models manufactured in
Mexico. We cannot assure you that our customers will continue to order services from us in the
future or that they will not reduce or defer the amount of services ordered. Additionally, if one
or more of our customers were to become insolvent or otherwise were unable to pay us for the
services provided, our financial condition could be adversely affected. The rates for trackage rights set by the Ministry of Transportation may not adequately compensate
us. Pursuant to our concession, we are required to grant rights to use portions of our tracks to
Ferromex, Ferrosur and the Ferrocarril y Terminal del Valle de
Mexico, S.A. de C.V. (Mexico Valley
Railroad and Terminal, or FTVM). The concession stipulates that
Ferromex, Ferrosur and FTVM are
required to grant to us rights to use portions of their tracks. Our concession classifies trackage rights as short trackage rights and long-distance trackage
rights. Although all of these trackage rights have been granted under our concession, no railroad
has actually operated under the long-distance trackage rights because the means of setting rates
for usage and other related terms of usage have not been agreed upon. Under the Mexican railroad
services law and regulations, the rates that we may charge for rights to use our tracks must be
agreed upon in writing between us and the party to which those rights are granted. However, if we
cannot reach an agreement on rates with rail carriers entitled to trackage rights on our rail
lines, the Mexican government is entitled to set the rates, which rates may not adequately
compensate us. We have not been able to reach an agreement with Ferromex regarding rates each of us is
required to pay the other for trackage rights, interline services and haulage rights. We and
Ferromex are involved in civil, judicial and administrative proceedings in connection with the
amounts payable to each other for interline services, haulage and trackage rights. Some of those
procedures continue under litigation and therefore are pending final resolution. Any resolution of
such procedures adverse to us could have a negative impact on our business and operations. See
Item 8. Financial InformationConsolidated Statements and Other Financial InformationLegal
ProceedingsDisputes with Mexican GovernmentOther LitigationDisputes with Ferromex. In addition,
under the Mexican railroad services law and regulations, acts or omissions that impede the
activities of other concessionaires, including the use of trackage rights, may result in the
revocation of our concession. Downturns in the Mexican economy, U.S. economy, Mexico-U.S. trade, certain cyclical industries in
which our customers operate, the global economy or fluctuations in the Peso-Dollar exchange rate
could have adverse effects on our financial condition. Downturns in the Mexican or U.S. economy or in trade between Mexico and the U.S. will likely
have adverse effects on our business and results of operations. Mexican exports to the U.S. of
manufactured goods, beer, metals and minerals, automobiles, chemical and petrochemical products and
other products, -13-




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many of which we transport, are an important element of Mexico-U.S. trade. In addition, a
significant portion of our business consists of imports into Mexico from the U.S. The level of our
business activity depends heavily on the Mexican and U.S. economies and markets, the relative
competitiveness of Mexican and U.S. products at any given time and on existing and new tariffs or
other barriers to trade. For example, the recent downturn in the U.S. economy has had an adverse
effect on our revenues in all product categories, particularly in the automotive and industrial
segments. This downturn may continue and could worsen, thereby having a material adverse effect on
our results of operations and our ability to meet our debt service obligations. Some of our customers operate in industries that experience cyclicality, including the
agricultural, automotive, manufacturing and construction sectors. Any downturn in these sectors due
to the effects of cyclicality or otherwise could have a material adverse effect on our operating
results. Also, some of the products we transport have had a historical pattern of price cyclicality
which has typically been influenced by the general economic environment and by supply and demand
factors in the relevant markets. For example, global steel and petrochemical prices have decreased
in the past. We cannot assure you that prices and demand for these products will not decline in the
future, adversely affecting those industries and, in turn, our financial condition. Our business may also be adversely affected by downturns in the global economy or in
particular regions of the global economy. In addition, fluctuations in the Peso-Dollar exchange
rate could lead to shifts in the types and volumes of Mexican imports and exports as manufacturers
and raw material suppliers seek to minimize the effect of exchange rate movements by seeking other
markets for their business. Although a decrease in the level of exports of some of the commodities that we transport to
the U.S. may be offset by a subsequent increase in imports of other commodities we haul into Mexico
and vice versa, any offsetting increase might not occur on a timely basis, if at all. The level of
Mexico-U.S. trade and the development of Mexican-U.S. trade negotiations or agreements in the
future are beyond our control, and may result in a reduction of freight volumes or in an
unfavorable shift in the mix of products and commodities we transport. The Mexican government may restrict our ability to operate our concession on a profitable basis by
setting tariffs for rail freight services. Under the concession and Mexican law, we may freely set our tariffs for rail freight services,
but we must register our tariffs with the Ministry of Transportation before they become effective.
Under the Mexican railroad services law and regulations, the Ministry of Transportation reserves
the right to set tariffs if, in consultation with the Comisión Federal de Competencia, or the
Mexican Antitrust Commission, it determines that effective competition does not exist. The Mexican
Antitrust Commission, however, has not published guidelines regarding the factors that constitute a
lack of competition. It is therefore unclear under what particular circumstances the Mexican
Antitrust Commission would deem a lack of competition to exist. If the Ministry of Transportation
intervenes and sets tariffs, the rates it sets may be too low to allow us to operate profitably. Traffic congestion or
similar problems experienced in the U.S. or Mexican railroad system may
adversely affect our operations. Traffic congestion experienced in the U.S. railroad system may result in overall traffic
congestion which would impact the ability to move traffic to and from Mexico and adversely affect
our operations. This system congestion may also result in certain equipment shortages. Any similar
congestion experienced by railroads in Mexico could have an adverse effect on our business and
results of operations. In addition, the growth of cross-border traffic in recent years has
contributed to congestion on the international bridge at the -14-




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Nuevo Laredo-Laredo border gateway, which is expected to continue in the near future. This may
adversely affect our business and results of operations. If the Mexican governments preliminary findings and conclusions arising from its tax audit of our
1997 tax returns are sustained, it could have a material adverse effect on our financial condition,
results of operations and business. On January 20, 2004, we were served with an unofficial letter notifying us of the Mexican
governments preliminary findings and conclusions arising from its tax audit of our 1997 tax
returns. On March 16, 2005, we were notified by the SAT that it had finished its audit of our 1997
tax return. In the notice, the SAT states that we did not supply documentation complying with the
requirements of the Mexican fiscal code and were not entitled in our 1997 tax returns to depreciate
and deduct the concession title, the railway equipment and other assets that were assets of our
predecessor at the time that our rail lines were privatized in 1997. As part of the conclusion of
the audit, the SAT confirmed its provisional attachment of the VAT
refund certificate, which was
delivered to us on January 19, 2004. The SAT has not yet assessed any penalties or taxes against us
as a result of this audit, but it may do so at any time prior to September 16, 2005. If the
preliminary conclusion is sustained, we would be unable to depreciate for Mexican tax purposes the
concession title, locomotives and rail equipment and capital leases, which represent the majority
of the value of our assets. If we are unable to depreciate the concession title and other assets
reported on our 1997 tax returns and tax returns for subsequent years, this would have a material
adverse effect on our financial condition, results of operations and business. See Item 8.
Financial InformationConsolidated Statements and Other Financial InformationLegal
ProceedingsDisputes with Mexican Government1997 Tax Audit. We may not receive the proceeds specified by the VAT refund claim. On
January 19, 2004, we received a VAT refund certificate from the Tesorería de la
Federación, or the Mexican Treasury, entitling us to receive the original amount of the VAT refund
we claimed in 1997 without any adjustments for inflation and interest. As mentioned above, the
Mexican government attached the VAT refund certificate pending resolution of the 1997 tax return
audit as a potential asset to be used to satisfy any tax obligations owed by us as a result of that
audit. We filed a complaint seeking to have the amount of the VAT refund certificate adjusted to
reflect inflation and interest from 1997 to the date of issuance in accordance with Mexican law. In
a decision dated November 24, 2004, the Federal Court issued a decision upholding our claim that we are
entitled to inflation and interest on the VAT refund from 1997 until the date that a new
certificate reflecting the addition of such inflation and interest is delivered to us. The Federal
Court remanded the case to the relevant Fiscal Court with instructions to enter a new order
consistent with this decision. On February 18, 2005, the Fiscal Court issued a written decision
ordering the Mexican Treasury to issue to us a certificate for the original amount of the VAT
refund claimed, adjusted for inflation and interest from the date the tax authority should have
made the refund in 1997, until the date that the refund certificate is actually delivered to us. We
have not yet received the VAT refund from the federal tax authorities and we are currently in
discussions with such tax authorities relating to the matter. There can be no assurance that we will receive the proceeds
specified by the VAT refund claim or be able to monetize or realize any value from the VAT refund
certificate, particularly in light of the disputes between us and our affiliates and the Mexican
government. See Item 8. Financial InformationConsolidated Statements and Other Financial
InformationLegal ProceedingsDisputes with Mexican GovernmentValue Added Tax Lawsuit, 1997 Tax
Audit and Other LitigationMiscellaneous Legal Proceedings. Our business strategy, operations and growth rely significantly on third parties. Our operations are dependent on interchange agreements that we have negotiated with major U.S.
railroads in the north, Ferromex in the west of Mexico and Ferrosur in the south of Mexico. We also
have a -15-




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terminal operations agreement
with FTVM. In addition, we and each of the concessionaires of
Ferromex and Ferrosur have a 25.0% interest in FTVM. These agreements enable us to exchange traffic
and utilize trackage which is not part of our rail system, extending our network and providing us
with strategically important rail links to the U.S. and to areas of Mexico that we do not directly
serve. Our ability to provide comprehensive service to our customers depends in part on our ability
to maintain these agreements with other railroads and third parties and our ability to take legal
action in the Mexican federal courts to enforce such agreements on the grounds that the railroads
are a public service governed by public interest laws. Our failure to maintain these agreements,
the termination of these agreements, or failure to obtain the corresponding legal relief in due
course, could adversely affect our business, financial condition and results of operations. The
other parties to these agreements may not faithfully fulfill their obligations under their
agreements or arrangements with us, and many of these other parties are or may become our
competitors. Further, the failure of any of these parties to fulfill its obligations to us could
adversely affect our financial condition and results of operations. In addition, we may not be able
to coordinate our interchange and switching activities with these other concessionaires and
railroads in an efficient manner. Inefficient coordination of our interchange and switching
activities would negatively impact our operating results. If our primary fuel supply contract is terminated, or if fuel prices substantially increase, our
financial condition could be materially adversely affected. Approximately 99% of the locomotives we operate are diesel-powered, and our fuel expenses are
a significant portion of our operating expenses. We meet, and expect to continue to meet, our fuel
requirements almost exclusively through purchases at market prices from PEMEX Refinación, or
PEMEX. The contract may be terminated at any time by either party upon three months written
notice to the other. If the contract is terminated and we are unable to acquire diesel fuel from
alternative sources on acceptable terms, our financial condition could be materially adversely
affected. In addition, since our fuel expense represents a significant portion of our operating
expenses, significant increases in the price of diesel fuel could have a material adverse effect on
our financial condition. We experienced an increase of 24.2% in 2003 and a decrease of 13.8% in
2002, in our average price of fuel per gallon. In 2004, our average price of fuel per gallon
increased by 30.1% from 2003. During 2005, we expect that fuel prices will remain volatile and will
continue to be driven by high levels of consumption and relatively tight levels of inventories. If
the price of diesel fuel continues to increase, this could have an adverse effect on our financial
condition. We face possible catastrophic loss and liability, and our insurance may not be sufficient to cover
our damages or damages to others. The operation of any railroad carries with it an inherent risk of catastrophe, mechanical
failure, collision and property loss. In the course of our operations, spills or other
environmental mishaps, cargo loss or damage, business interruption due to political developments,
as well as labor disputes, strikes and adverse weather conditions, could result in a loss of
revenues or increased liabilities and costs. Collisions, environmental mishaps or other accidents
can cause serious bodily injury, death and extensive property damage, particularly when such
accidents occur in heavily populated areas. Additionally, our operations may be affected from time
to time by natural disasters such as earthquakes, volcanoes, hurricanes or other storms. The
occurrence of a major natural disaster, especially in the Mexico City area, which is the site of
FTVM and significant portions of our customer base, could have a material adverse effect on our
operations and our financial condition. We have acquired insurance that is consistent with industry
practice and consistent with the requirements of our concession against the accident-related risks
involved in the conduct of our business and business interruption due to natural disaster. However,
this insurance is subject to a number of limitations on coverage, depending on the nature of the
risk insured against. This insurance may not be sufficient to cover our damages or damages to
others, and this insurance may not continue to be available at commercially reasonable rates. Even
with insurance, if any catastrophic interruption of service occurs, we may not be able -16-




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to restore service without a significant interruption to operations and an adverse effect on
our financial condition. We face potential environmental liabilities. Our operations are subject to general Mexican federal and state laws and regulations relating
to the protection of the environment. The Procuraduría Federal de Protección al Ambiente(Mexican
Attorney General for Environmental Protection) is empowered to bring administrative proceedings and
impose corrective actions and economic sanctions against companies that violate environmental laws,
and temporarily or permanently close non-complying facilities. The Secretaría del Medio Ambiente y
Recursos Naturales(Mexican Ministry of Environmental Protection and Natural Resources) and other
ministries have promulgated compliance standards for, among other things, water discharge, water
supply, air emissions, noise pollution, hazardous substances transportation and handling, and
hazardous and solid waste generation. We are responsible for the costs of environmental compliance, associated with our ongoing
operations. Pursuant to our concession, FNM is responsible for any environmental damage caused
before the commencement of our operations, and both the Mexican government and FNM is required to
indemnify us for any environmental liability relating to soil, subsoil or groundwater contamination
arising from acts or omissions attributable to FNM that occurred before TFM initiated operations in
accordance with the concession title. However, the Mexican government is not obligated to
compensate us for any expenses that we incur in complying with any amended environmental laws or
regulations relating to our ongoing operations or activities that impose higher regulatory
standards than those in effect on the date the concession was granted. We cannot predict the
effect, if any, that the adoption of additional or more stringent environmental laws and
regulations would have on our financial condition. Failure to comply with environmental obligations
may result in the termination of our concession. Terrorist activities and geopolitical events and their consequences could adversely affect our
financial condition. Terrorist attacks may negatively affect our operations. The continued threat of terrorism
within the U.S. and abroad and the potential for military action and heightened security measures
in response to such threat may cause significant disruption to commerce throughout the world,
including restrictions on cross-border transport and trade. In addition, related political events
may cause a lengthy period of uncertainty that may adversely affect our business. Political and
economic instability in other regions of the world, including the U.S. and Canada, could negatively
impact our operations. The consequences of terrorism and the responses thereto are unpredictable
and could have an adverse effect on our financial condition. Our controlling stockholders interests may be different from ours. As of April 1, 2005, KCS is our controlling stockholder with full power to direct our
business. KCS on its own can make decisions and determine corporate transactions, mergers,
consolidations, and other matters. The interests of KCS may be different from our interests and KCS
may exercise influence over us in a manner inconsistent with our interests. See Item 7. Major
Shareholders and Related Party Transactions. Risk Factors Relating to Mexico Governmental policies and economic developments in Mexico and elsewhere may adversely affect our
financial condition. Most of our operations and assets are located in Mexico. As a result, our business is
affected by the general condition of the economy, inflation, interest rates, political and other
developments and events in -17-




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Mexico. Mexico has experienced a period of slow economic growth in recent years, primarily as
a result of the downturn in the U.S. economy. In 2000, Mexicos gross domestic product, or GDP,
increased 6.6%. In 2001, Mexicos GDP decreased 0.2% while it increased in 2002 and 2003 by 0.8%
and 1.4%, respectively. Mexicos economy grew 4.4% in 2004 compared to 2003. We believe that
economic slowdowns have negatively affected and could continue to negatively affect our financial
condition. Currency fluctuations may adversely affect our financial condition. Approximately 98% of our total consolidated indebtedness as of December 31, 2004, was U.S.
Dollar-denominated, whereas approximately 44% of our consolidated revenues were Peso-denominated.
Accordingly, we are affected by fluctuations in the value of the Peso against the U.S. Dollar and
any depreciation or devaluation of the Peso against the U.S. Dollar results in net foreign exchange
losses. In 2004, the Peso appreciated against the U.S. Dollar by approximately 0.8%. In 2003, the
Peso depreciated against the U.S. Dollar by approximately 7.4%. In 2002, the Peso depreciated by
approximately 13.9% against the U.S. Dollar, compared to appreciation of approximately 4.5% in
2001. Severe devaluation or depreciation of the Peso may result in disruption of the international
foreign exchange markets and may limit our ability to transfer or to convert Pesos into U.S.
Dollars for the purpose of making timely payments of interest and principal on our
non-Peso-denominated indebtedness. Although the Mexican government currently does not restrict,
and for many years has not restricted, the right or ability of Mexican or foreign persons or
entities to convert Pesos into U.S. Dollars or transfer foreign currencies out of Mexico, the
Mexican government could, as in the past, institute restrictive exchange rate policies that could
limit our ability to transfer or convert Pesos into U.S. Dollars or other currencies for the
purpose of making timely payments of our U.S. Dollar-denominated debt and contractual commitments.
Devaluation or depreciation of the Peso against the U.S. Dollar may also adversely affect U.S.
Dollar prices for our securities. Currency fluctuations are likely to continue to have an effect on
our financial condition in future periods. Inflation and interest rates may adversely affect our financial condition. Mexico has historically experienced high levels of inflation. The annual rate of inflation was
4.4%, 5.7%, 4.0% and 5.2% for 2001, 2002, 2003 and 2004, respectively. High inflation rates can
adversely affect our business and results of operations in the following ways:  
    
    inflation can adversely affect consumer purchasing power, thereby adversely affecting
demand for the products we transport;
    
    to the extent inflation exceeds our price increases, our prices and revenues will be
adversely affected in real terms; and
    
    if the rate of Mexican inflation exceeds the rate of the depreciation of the Peso
against the Dollar, our Dollar-denominated sales will decrease in relative terms when
stated in constant Pesos. Interest rates on 28-day Certificados de la Tesorería de la Federación(Mexican treasury
bills), or Cetes, averaged 11.3%, 7.1%, 6.2% and 6.8% for 2001, 2002, 2003 and 2004, respectively.
High interest rates in Mexico may significantly increase our financing costs and thereby impair our
financial condition, results of operations and cash flows. We performed an analysis under the guidance of FAS 52 and IAS No. 29, Financial Reporting in
Hyper Inflationary Economies or IAS 29, to determine whether the U.S. Dollar or the Mexican Peso
should be used by TFM as its functional currency. Based on the results of this analysis, we
concluded that the U.S. Dollar is the appropriate functional currency for IFRS, U.S. GAAP and SEC
reporting purposes. We update -18-




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the results of this analysis on an ongoing basis. If we were required to change our
functional currency to Pesos, our historical results of operations reported in IFRS as well as our
results of operation reported in U.S. GAAP and for SEC reporting purposes may be substantially
different. There can be no assurance that Mexico will not be classified as highly inflationary in
the future, or that we will not be required to change our functional currency to Pesos. Political developments may adversely affect our business, financial condition and results of
operations. Presidential and federal congress elections in Mexico will be held in July 2006. The electoral
process could lead to further friction among political parties and the executive branch offices,
which could potentially cause political and economic instability. Additionally, once the President
and representatives are elected, there could be significant changes in laws, public policies and
government programs, which could have an adverse effect on our business, financial condition and
results of operation. National politicians are currently focused on the 2006 elections and crucial reforms regarding
fiscal and labor policies, gas, electricity, social security and oil have not been and may not be
approved. The effects on the social and political situation in Mexico could adversely affect the
Mexican economy, which in turn could have a material adverse effect on our business, financial
condition and results of operations. Renegotiation of terms of the labor agreement and any potential labor disruptions could adversely
affect our financial condition. Approximately 71.0% of our employees are covered by a labor agreement, which was renewed in
July 2003 for a two-year term ending in July of this year. The compensation terms of the labor
agreement are subject to renegotiation on an annual basis and all other terms are renegotiated
every two years. We expect to renegotiate terms of the labor agreement in 2005 for another two-year
term. This year, we may not be able to favorably negotiate the provisions of our labor agreement,
and strikes, boycotts or other disruptions could occur. These renegotiated terms and any potential
disruptions could have a material adverse effect on our financial condition and results of
operations. 
 ITEM 4.          INFORMATION ON THE COMPANY A.          HISTORY AND DEVELOPMENT OF THE COMPANY In March 1995, the constitution of Mexico was amended to establish the legal framework for the
privatization of the Mexican railroad system, which historically had been operated by FNM. In
order to facilitate the privatization of its rail system, the Mexican government divided the system
into three regional trunk lines, (1) the Northeast Rail Lines, (2) the Pacific-North Rail Lines,
and (3) the Southeast Rail Lines, FTVM, and several short line railroads. TFM was originally incorporated on November 22, 1996 as Ferrocarril del Noreste, S.A. de C.V.
(Northeast Railroad), with its corporate domicile in Monterrey, Nuevo Léon. On May 29, 1997,
Ferrocarril del Noreste, S.A. de C.V.changed its name to TFM, S.A. de C.V. and its domicile to
Mexico, D.F. Such changes were registered in the Public Registry of Property of Mexico, D.F. under
folio mercantil 222,305. TFM is a sociedad anónima de capital variable(variable capital
corporation) incorporated under Mexican law for a term of 99 years. On December 2, 1996, the
Mexican government granted TFM a 50-year concession, renewable subject to certain conditions for
additional periods of up to 50 years, to provide freight transportation services over the Northeast
Rail Lines, and agreed to transfer to TFM related railroad equipment and other assets as well as
25.0% of the share capital of FTVM. The concession gives TFM the exclusive right to provide
freight transportation services over the Northeast Rail Lines for the initial 30 years -19-




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of TFMs 50-year concession, subject to the terms and provisions contained in the concession,
including provisions for trackage rights to be granted to other Mexican rail operators. TFM has a
non-exclusive right to provide such services for the remainder of the term of the concession. TFM
commenced operations on June 24, 1997. TFMs rail lines were the first to be privatized. Since
1997, most of the Mexican rail system has been privatized by the Mexican government. Grupo TFM, a sociedad anónima de capital variableincorporated under Mexican law on July 12,
1996 for a term of 99 years, was formed by Transportación Marítima Mexicana, S.A. de C.V., or TMM
(the predecessor to Grupo TMM), KCS and Grupo Servia, S.A. de C.V., or Grupo Servia, which was then
TMMs principal shareholder, for the purpose of participating in the privatization of the Mexican
railroad system. Grupo TFM is a non-operating holding company, domiciled in Mexico, D.F., its
principal asset being the stock of TFM. TMM initially owned 50.2% of the unrestricted voting
shares of Grupo TFM, giving TMM voting control of Grupo TFM. In December 1996, Grupo TFM was
awarded the right to acquire 80.0% of the outstanding share capital of TFM (representing 100.0% of
TFMs unrestricted voting shares). The acquisition of those shares by Grupo TFM from the Mexican
government for a total purchase price of $1,407.1 million was completed on June 23, 1997. At that
time, the TFM shares were delivered to Grupo TFM, rolling stock and related railroad assets were
delivered by the Mexican government to TFM, and TFMs concession to operate its rail lines took
effect. In connection with the closing of the acquisition, the Mexican government retained a 20.0%
equity interest in TFM and acquired (through FNM) a 24.6% equity interest in Grupo TFM, in each
case consisting of restricted voting shares. In January 2001, Grupo Servia sold its 0.8% equity
interest in Grupo TFM to TMM, as a result of which TMM became the owner of 51.0% of Grupo TFMs
unrestricted voting shares. Grupo Servia subsequently was renamed Grupo TMM, S.A. de C.V., and
in December 2001, TMM was merged with and into Grupo TMM. Effective September 13, 2002, Grupo TMM,
S.A. de C.V.reclassified its Series L Shares into Series A Shares and as a result the name of the
company is now Grupo TMM, S.A. The amount required to consummate the acquisition of TFM from the Mexican government was
financed through (1) bank borrowings under senior secured credit facilities and proceeds from the
issuance of securities by TFM, (2) proceeds from the sale of Grupo TFM shares to the Mexican
government, or the call option shares, and (3) equity capital contributed by TMM, Grupo Servia and
KCS. The call option shares have restricted voting rights. On March 27, 2002, we acquired from Grupo TMM and KCS all of the outstanding stock of Mexrail.
Mexrail owns the northern or U.S. portion of the international rail bridge at Laredo and all of
the capital stock of The Texas Mexican Railway Company, or Tex-Mex. Tex-Mex, a U.S. based
short-line railroad that connects the Kansas City Southern Railway Company, or KCSR, with TFM,
operates a 521-mile railway between Laredo, Houston and Beaumont, Texas. In May 2003, TFM sold a
51.0% interest in Mexrail and Mexrails wholly-owned subsidiary, Tex-Mex, to KCS for $32.6 million
pursuant to a stock purchase agreement dated April 15, 2003. The Mexrail stock sold by TFM was to
remain in an independent voting trust pending approval of the
transaction by the U.S. Surface
Transportation Board, or STB. Within two years of the date of the Mexrail sale agreement, TFM had
the right to repurchase all of the shares from KCS at any time for an amount equal to the purchase
price. Such right was unconditional and could be exercised in the sole discretion of TFM by
written notice to KCS given by the chairman of TFM and without any other corporate approvals of TFM
or Grupo TMM. In August 2003, TFM gave notice to KCS of exercise of its right to repurchase the
shares representing an aggregate 51% interest in Mexrail. On September 23, 2003, the -20-




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STB issued a decision finding no need to rule on the transfer back to TFM of the 51% interest
in Mexrail. On September 30, 2003, TFM completed the repurchase of such shares at a purchase price
of $32.6 million, which is the same amount received by TFM in May 2003, upon closing of the sale of
such shares to KCS. TFM funded this transaction with its existing cash balances. Upon completion
of the repurchase, TFM again owned 100% of Mexrail. On
July 29, 2002, TFM purchased the equity interest of the Mexican government in Grupo TFM,
acquired by the Mexican government in connection with the financing of the privatization of our
rail lines in June 1997. Until April 1, 2005, Grupo TFM was owned 38.5% by Grupo TMM, 36.9% by KCS and following
TFMs acquisition of the call option shares on July 29, 2002, 24.6% by TFM. On August 16, 2004, Grupo TMM and KCS agreed that TFM would sell shares representing 51.0% of
Mexrail to KCS for approximately $32.7 million. KCS agreed that
Tex-Mex would repay TFM, on or
before January 1, 2005, certain advances from TFM in an amount
of approximately $9 million, and KCS
paid to Grupo TMM at the closing, outstanding payables of approximately $400,000. The Mexrail
shares were placed in a voting trust pending regulatory approval by the STB of KCSs common control
of Tex-Mex, KCSR, and the Gateway Eastern Railway Company (which is not party to the transaction).
On November 29, 2004 the STB approved KCSs application for authority to control Tex-Mex and the
U.S. portion of the international rail bridge at Laredo, Texas. Under the agreement, KCS agreed to
purchase the remaining 49% of Mexrail on or before October 31, 2005. KCS further agreed
to comply with all prior STB rulings concerning the international bridge between Laredo and Nuevo
Laredo, and to operate such bridge under the terms of applicable bridge agreements and protocols. On April 1, 2005, KCS and Grupo TMM, completed a transaction under which KCS acquired control
of Grupo TFM through the purchase of shares of the common stock of Grupo TFM belonging to Grupo
TMM, representing a 48.5% economic interest (51% of the shares of Grupo TFM entitled to full voting
rights) for a purchase price of (i) $200 million in cash, (ii) 18,000,000 shares of the common
stock of KCS, and (iii) a promissory note in the aggregate principal amount of $47 million, payable
subject to the terms of a certain escrow agreement. As a result of the acquisition, KCS has a
controlling interest in Grupo TFM, consisting of a 75.4% of the outstanding shares (100% of the
shares of Grupo TFM entitled to full voting rights). By virtue of Grupo TFMs ownership interest
in TFM, KCS has a controlling interest in TFM. In addition, upon resolution of the VAT refund
claim and the Mexican governments put claim, KCS may be obligated to pay Grupo TMM up to $110
million payable in a combination of cash and KCS common stock. Grupo TMM is now a shareholder of
KCS. Both TFM and Grupo TFMs headquarters are located at Av. Periférico Sur No. 4829, 4to Piso,
Col. Parques del Pedregal, México, D.F. 14010, México, and our telephone number from the U.S. is
011-525-55-447-5836. We have no general agent for service of process in the U.S. Passenger Transport Under the concession, the Mexican government has specifically reserved the right to grant
exclusive rights to provide passenger service over our rail lines to a concessionaire other than
TFM. Since we commenced operations, the Mexican government has provided a minimal level of
passenger train service to certain areas within our service territory under an arrangement in which
FNM is responsible for the management of all passenger cars and related personnel necessary for the
provision of such service. Our obligation with respect to the provision of passenger service by
FNM is limited to providing FNM with locomotive power, engineers and dispatching services for which
we are reimbursed. Capital Expenditures and Divestitures A significant portion of our capital expenditures is tied to traffic volumes, and is therefore
variable to the extent such volumes change. Capital expenditures for financial reporting purposes
do not include locomotives or railcars leased under operating leases. -21-




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We made capital expenditures of $41.1 million, representing 5.9% of our transportation
revenues, in 2004, including $24.3 million for track improvements, including siding extensions and
track equipment acquisition, and $7.9 million for upgrades to our locomotives and freight cars. In
2003, we made capital expenditures in the amount of $73.1 million, representing 10.5% of our
transportation revenues, including $48.7 million for improvements to our rail line and $18.4
million for locomotive and freight car upgrades. In 2002, we made capital expenditures in the
amount of $89.4 million, representing 12.5% of our transportation revenues, including $35.8 million
for the rehabilitation of our route between Mexico City and Lázaro Cárdenas, among other rail
lines, $5.3 million for the construction of the Sánchez freight yard, $6.6 million for the
construction of the Monterrey Intermodal Terminal and $8.0 million for the construction of the
Toluca Intermodal Terminal. We plan to continue to make capital expenditures to improve our infrastructure. According to
our amended and restated credit agreement, we have restrictions on capital expenditures of $60 million in 2005 and $70 million in 2006. Under the concession, we are required
to make certain capital expenditures as outlined in five-year business plans submitted to the
Mexican government. We have funded, and expect to continue to fund, capital expenditures with funds
primarily from operating cash flows and vendor financing. The following tables set forth our principal capital expenditures and divestitures during the
last three years. Current capital expenditures and divestitures are being financed with funds from
operating cash flows and vendor financing Years EndedDecember 31,2002
    
    
    2003
    
    
    2004(in millions of Dollars)Capital ExpendituresLocomotives and freight cars
    
    $
    12.2
    
    
    $
    18.4
    
    
    $
    7.9Rail track
    
    
    70.5
    
    
    
    48.7
    
    
    
    24.3Telecommunication
    
    
    3.0
    
    
    
    1.7
    
    
    
    1.1Other
    
    
    3.7
    
    
    
    4.3
    
    
    
    7.8Total
    
    $
    89.4
    
    
    $
    73.1
    
    
    $
    41.1
 Years EndedDecember 31,2002
    
    
    2003
    
    
    2004(in millions of Dollars)Capital Divestitures(1)Freight cars
    
    $
    5.1
    
    
    $
    3.4
    
    
    $
    0.1Concession equipment
    
    
    1.9
    
    
    
    1.5
    
    
    
    3.6Other assets
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.4Sale of 51% of Mexrail plus call option, net
    
    
    
    
    
    
    
    
    
    
    27.1Total
    
    $
    7.5
    
    
    $
    5.3
    
    
    $
    31.2
 
 (1)
    
    Capital divestitures are shown in our cash flow statement included elsewhere in this annual
report in the line items Loss on sale of property and machinery included in cash flow from
operating activities, and Sale of property, machinery and equipment and Proceeds from sale
of Mexrails shares, net of cash included in cash flow from investing activities. -22-




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B.          BUSINESS OVERVIEW General We operate the primary commercial corridor of the Mexican railroad system, which allows us to
participate significantly in the growing freight traffic between Mexico, the U.S. and Canada. Our
rail lines consist of 2,636 miles of main track. In addition, we have trackage rights entitling us
to run our trains over 541 miles of track of other Mexican railroad operators. We provide freight
transportation services under our 50-year concession, during the first 30 years of which we are the
exclusive provider, subject to certain trackage rights of other freight carriers. Our concession is
renewable for additional periods of up to 50 years subject to certain conditions. We believe our rail lines comprise the most strategically significant and most actively
traveled rail corridor in Mexico. Our rail lines connect the most populated and industrialized
regions of Mexico with the principal border gateway between Mexico at Nuevo Laredo, Tamaulipas and
the U.S. at Laredo, Texas. In addition, we serve three of Mexicos most important seaports at
Veracruz and Tampico on the Gulf of Mexico and Lázaro Cárdenas on the Pacific Ocean. As a result,
we believe our routes are integral to Mexicos foreign trade. We seek to establish our railroad as the primary inland freight transporter linking Mexico
with the U.S. and Canadian markets. As the operator of the primary and most direct rail corridor
from Mexico City to the U.S. border, our route structure enables us to benefit from continuing
growth in NAFTA trade. We are the only Mexican railroad that serves the Mexico-U.S. border crossing
at Nuevo Laredo-Laredo, which is the largest freight exchange point between Mexico and the U.S.
Through KCS, as well as through interchanges with other major U.S. railroads, we provide customers
with access to an extensive network through which they may distribute products throughout North
America and overseas. Our revenues are derived from the movement of a diversified mix of commodities and products
predominantly attributable to cross-border traffic with the U.S. We transport goods in the product
categories of agro-industrial products, cement, metals and minerals, chemical and petrochemical
products, automotive products, manufactured products and industrial products and intermodal
freight. Our customers include leading international and Mexican corporations. The Concession We hold a 50-year concession, which took effect in June 1997 and is renewable under certain
conditions for additional periods of up to 50 years, to provide freight transportation services
over our rail lines. Our concession is exclusive for the first 30 years of our operations, subject
to certain trackage rights of Ferroxmex, Ferrosur, two short line
railroads and FTVM. In
conjunction with our concession, Grupo TFM acquired 80.0% of the shares of TFM (which represents
all of the shares of TFM with full voting rights). In 1997, Grupo TFM paid a total of $1,464.5
million to acquire the concession, TFMs shares and certain railroad equipment and related assets,
including railcars and locomotives and a 25.0% interest in FTVM. We have the right to use, during
the full term of the concession, all track and buildings that are necessary for our rail lines
operation. Under the terms of the concession, TFM is required to pay the Mexican government a
concession duty equal to 0.5% of our gross revenues during the first 15 years of the concession
period and 1.25% of such revenues during the remainder of the period. Under the concession and the Mexican railroad services law and regulations, we may freely set
our rates unless the Ministry of Transportation, in consultation with the Mexican Antitrust
Commission, determines that there is no effective competition in Mexicos rail industry, taking
into account alternative rail -23-




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routes and modes of transportation. If the Mexican Antitrust Commission determines that there
is a lack of competition, the Ministry of Transportation will establish the basis for our rates.
Our rates must be registered and applied in accordance with the Mexican railroad services law and
regulations. In applying our rates, we must not make cross-subsidies, engage in tied sales or
engage in other discriminatory pricing tactics. We are required to provide railroad services to all
users on a fair and non-discriminatory basis and in accordance with efficiency and safety standards
approved periodically by the Ministry of Transportation. In the event that we collect from
customers rates higher than the registered rates, we must reimburse those customers with interest,
and risk the revocation of the concession. Mexican railroad services law and regulations and the concession establish several
circumstances under which the concession will terminate, including revocation by the Ministry of
Transportation, voluntary surrender of our rights under the concession, statutory appropriation or
our liquidation or bankruptcy. Specifically, the Mexican government may revoke the concession for
the following reasons: (1) unjustified interruption of the operation of our rail lines; (2) any
act or omission that restricts the ability of other Mexican rail operators to use our rail lines;
(3) failure to make payments for damages caused during the performance of services; (4) charging
rates higher than registered rates; (5) a change in our nationality; (6) our assignment of, or
creation of liens on, the concession without the prior approval of the Ministry of Transportation;
(7) failure to maintain an obligations compliance bond and adequate insurance coverage as required
by the Mexican railroad services law and regulations; and (8) noncompliance with any term or
condition of Mexican railroad services law and regulations or the concession. In the cases of (5)
or (6) above, the concession will be automatically revoked. In the event that the concession is
revoked by the Ministry of Transportation, we will receive no compensation, and the rail lines and
all other fixtures covered by the concession, as well as all improvements made by us to such rail
lines, will revert to the Mexican government. All other property not covered by the concession,
including movable railroad property we purchased from the Mexican government, as well as all
locomotives and railcars we otherwise acquired, will remain our property. However, if we attempt to
sell more than 15.0% of our equipment to a third party within 90 days of termination or revocation
of our concession, the Mexican government will have a right of first refusal to purchase the
equipment on the same terms offered by the third party if no other concessionaire is likely to
provide rail services over our rail lines and the equipment being sold is indispensable to the
continuation of our rail services. After the Mexican government receives notice from us of our
intention to sell the equipment, it will have 30 days to exercise its right of first refusal. In
addition, the Mexican government will have the right to cause us to lease all of our
service-related assets to the Ministry of Transportation for a term of at least one year,
automatically renewable for additional one-year terms up to five years. The Mexican government must
exercise this right within four months after revocation of the concession. The Ministry of Transportation established in the concession title that, except with respect
to those events which constitute grounds for automatic revocation of the concession (as described
in clauses (5) and (6) in the paragraph above), it will notify the creditors that provided
financing for Grupo TFMs acquisition of its equity interest in TFM and will allow such creditors,
with the Ministry of Transportations prior written consent, the opportunity to nominate a party to
assume the concession. In addition, if the concession is terminated by revocation, permanent
seizure of our rail lines, or upon the liquidation or bankruptcy of TFM, then profits received by
the Mexican government or by a third party concessionaire from the operation and exploitation of
our rail lines shall continue to be committed to repay creditors that provided financing to TFM for
work projects directly related to the rendering of railroad services and performed on the rail
lines. The concession requires us to make investments and undertake capital projects, including
capital projects described in a business plan filed every five years with the Mexican government.
We filed our second business plan with the Mexican government in 2003. Under the terms of the plan,
we have committed to certain investment and capital improvement goals, which may be waived by the
Ministry of Transportation upon our application for relief for good cause. We are also responsible
for compliance with efficiency and -24-




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safety standards set forth in the concession, which are based on standards of the Association
of American Railroads, or AAR. Under the concession, we are responsible for all ecological and environmental damage that we
may cause from and after the date of commencement of operations. The Mexican government has agreed
to indemnify us for any environmental liability relating to soil, subsoil or groundwater
contamination attributable to the Mexican governments operations occurring prior to the
commencement of operations in accordance with the concession title in 1997. We assumed full
responsibility for the operation of supply depots and shops and the supervision of infrastructure
projects, as well as compliance with present and future environmental protection laws and
regulations. We are required by the concession to obtain and maintain insurance policies in accordance with
the terms of the Mexican railroad services law and regulations. Except under specific
circumstances, we are responsible for damage caused to cargo transported by us over our lines, as
well as for damage caused to third parties and such parties property as a result of our
activities. The concession prohibits us from refusing to transport water to communities in need of such
service because of geographical or demographical characteristics, provided that we are paid at the
prescribed tariff rate. We are also required to transport mail, emergency supplies necessary for
rescue and salvage operations, and members of the Mexican governments armed forces. We must also
grant a right of passage for all railroad equipment of the Mexican governments armed forces. The
concession also requires us under certain circumstances to establish reserves to cover contingent
labor liabilities that arise during the term of the concession. If the Mexican government legally terminates the concession, public domain assets used in the
operation of our rail lines would be owned, controlled and managed by the Mexican government. The
Mexican government may also temporarily seize our rail lines and our assets used in operating our
rail lines in the event of a natural disaster, war, significant public disturbances, or imminent
danger to the domestic peace or economy. In such events, the Ministry of Transportation may
restrict our ability to exploit the concession fully for such time and in such manner as the
Ministry of Transportation deems necessary under the circumstances but only for the duration of any
of the foregoing events. Mexican law requires that the Mexican government pay us compensation if it effects a statutory
appropriation for reasons of the public interest. With respect to a temporary seizure due to any
cause other than international war, the Mexican railroad services law and regulations provides that
the Mexican government will indemnify an affected concessionaire for an amount equal to damages
caused and losses suffered. Under the concession, the Mexican government has specifically reserved the right to grant
exclusive rights to provide passenger service over our rail lines to a concessionaire other than
TFM. Since we commenced operations, the Mexican government has provided a minimal level of
passenger train service to certain areas within our service territory under an arrangement in which
FNM is responsible for the management of all passenger cars and related personnel necessary for the
provision of such service. Our obligation with respect to the provision of passenger service by FNM
is limited to providing FNM with locomotive power, engineers and dispatching services for which we
are reimbursed. Business Strategy Our strategic objective is to increase our revenues by offering safe, efficient and reliable
service which we believe will enable us to capture increased traffic volumes resulting from growth
in the Mexican domestic and foreign trade markets and the integration of the North American economy
through NAFTA. -25-




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The principal components of our strategy are to:  
    
    Increase revenue growth by converting traffic from trucking to rail transport.We
believe that we have converted and will continue to convert traffic from trucking to rail
transport in part by offering (i) a more efficient, reliable and safe customer-oriented
rail service than that provided by our predecessor and (ii) significant advantages over
trucking, such as the ability to carry larger volumes, for longer distances, at lower rates
with greater security and reliability.
    
    Exploit growth in Mexican domestic and foreign trade.We believe that growth in
Mexican commerce, as well as expected growth in international trade flows as a result of
NAFTA, among other factors, should enable us to continue to increase our revenues. We
believe that our routes are integral to Mexicos continued development and that we are
well-positioned to capitalize on trade expansion as a result of NAFTA growth between
Mexico, the U.S. and Canada, as well as Mexicos free trade agreements with the European
Union, Japan and other Latin American countries. We believe that NAFTA trade and other
Mexican foreign trade will continue to grow over the long term.
    
    Increase operating efficiency and productivity.We continue to develop operating
initiatives to support our strategy, including the implementation of railroad operating
practices designed to reduce labor costs and increase employee productivity, such as the
computerization of operations management systems, the rationalization of train dispatching
systems and employee training. We also intend to continue our investment plan, including
obtaining more fuel efficient locomotives and larger capacity railcars, maintaining our
rail infrastructure to Class I railroad standards, making capital improvements on our
secondary rail lines, building new freight yards, transload facilities and intermodal
terminals, and enhancing our communications systems.
    
    Exploit port development at Lázaro Cárdenas.The Mexican government is developing the
port at Lázaro Cárdenas on the Pacific Ocean as an alternate to the congested U.S. west
coast ports of Long Beach and Oakland. We are the sole provider of rail service to this
port and plan to provide an alternate route for Asian traffic bound for the eastern,
southern and midwestern United States. Network Our rail lines extend from Mexico City, Toluca and Aguascalientes to the U.S. border crossings
at Nuevo Laredo and Matamoros and to seaports on the Gulf of Mexico and the Pacific Ocean. Our main
track consists of core and feeder routes. Our core routes serve the principal industrial and
population centers of Mexico while our feeder lines connect with the ports of Veracruz, Lázaro
Cárdenas and Tampico, three of Mexicos four most important seaports. We currently have intermodal terminals located in Monterrey, Toluca, San Luís Potosí, and also
access to intermodal terminals at Querétaro, Guadalajara, Ramos Arizpe and Encantada. In addition,
we have direct access to intermodal terminals at the ports of Tampico, Veracruz and Lázaro Cárdenas
and to intermodal terminals at Altamira and Manzanillo through interline service with Ferromex, and
in Mexico City through the FTVM. We also have access to intermodal terminals at Laredo operated by
Tex-Mex and the Union Pacific Railroad Company, which we are using to develop international
intermodal business. We originate a significant portion of traffic transported over our rail lines within our
service territory. The following table illustrates originated and received traffic on our rail
lines by carloads in 2002, 2003 and 2004. -26-




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Year Ended December 31,2002(2)
    
    
    2003
    
    
    2004Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofCarloads
    
    
    Carloads
    
    
    Carloads
    
    
    Carloads
    
    
    Carloads
    
    
    CarloadsTraffic(1)Local
    
    
    551,863
    
    
    
    74.2
    %
    
    
    571,139
    
    
    
    74.3
    %
    
    
    571,311
    
    
    
    69.2
    %Interline originated
    
    
    91,379
    
    
    
    12.3
    
    
    
    102,175
    
    
    
    13.3
    
    
    
    108,343
    
    
    
    13.1Total originated
    
    
    643,242
    
    
    
    86.5
    
    
    
    673,314
    
    
    
    87.6
    
    
    
    679,654
    
    
    
    82.3Interline received
    
    
    84,903
    
    
    
    11.4
    
    
    
    91,102
    
    
    
    11.9
    
    
    
    139,967
    
    
    
    17.0Transient
    
    
    15,904
    
    
    
    2.1
    
    
    
    4,210
    
    
    
    0.5
    
    
    
    5,853
    
    
    
    0.7Total received
    
    
    100,807
    
    
    
    13.5
    
    
    
    95,312
    
    
    
    12.4
    
    
    
    145,820
    
    
    
    17.7Total
    
    
    744,049
    
    
    
    100.0
    %
    
    
    768,626
    
    
    
    100.0
    %
    
    
    825,474
    
    
    
    100.0
    %
 
 (1)
    
    Local traffic consists of freight that originates and terminates at points
within our rail system. Interline originated traffic originates in our rail system and is
delivered to connecting railroads. Interline received traffic is received from connecting
railroads and terminates in our rail system. Transient traffic is received from connecting
railroads and delivered to connecting railroads. All traffic passing through a gateway city or
port is treated as originating or ending at that gateway or port for purposes of the local,
interline and transient designations.(2)
    
    Amounts have been reclassified to conform with 2003 classifications. Core Routes and Traffic Our rail lines comprise five core routes. We believe these core routes are integral to
Mexicos foreign trade, as they connect Mexicos most industrialized and populated regions with its
principal border and seaport gateways. Mexico
CityNuevo Laredo.Through our 797-mile route from Mexico City to Nuevo Laredo, we
provide exclusive rail access to the Mexico-U.S. border crossing at Nuevo Laredo, the most
important interchange for freight between Mexico and the U.S. We operate the southern half of the
international rail bridge, which spans the Río Grande to connect Nuevo Laredo with Laredo. In 2003
and 2004, 61% and 62%, respectively, of Mexicos total imports and exports carried by rail passed
through Nuevo Laredo. The Mexico CityNuevo Laredo route is the shortest rail route between Mexico
City and the U.S. border. This route has the lowest grades of any rail route between Mexico City
and the U.S. border which translates into savings of both fuel and locomotive power. Movements over
the Mexico CityNuevo Laredo route accounted for 62.5%, 63.2%, and 64.2% of our total revenues in
2002, 2003 and 2004, respectively. Products transported through Nuevo Laredo include finished vehicles and auto parts, grain,
appliances, beer, chemicals, scrap paper and plastics. In 2002, 2003 and 2004, rail traffic
representing $412.9 million, $405.2 million and $426.5 million in revenues, respectively, was
transported through Nuevo Laredo on our rail lines, of which approximately 62.4%, 65.2% and 67.5%,
respectively, consisted of import traffic. In 2003, our revenues generated by this route decreased
by approximately 1.9% from 2002, but in 2004, our revenues generated by this route grew by
approximately 5.3% from 2003. Mexico CityLázaro Cárdenas.We provide exclusive access to the port of Lázaro Cárdenas on
the Pacific Ocean over our 491-mile route from Mexico City. In 2002, 2003 and 2004, we transported
rail traffic representing $37.4 million, $44.1 million and $61.1 million in revenues, respectively,
through Lázaro Cárdenas. Traffic at Lázaro Cárdenas is both domestic and import traffic, consisting
of minerals, iron, steel slabs, wire rods, fertilizers and intermodal containers. The tunnels along
this route are cleared for double-stack intermodal containers. The port of Lázaro Cárdenas also
handles traffic for export to Pacific Rim nations. The Mexican government is developing the port at
Lázaro Cárdenas on the Pacific Ocean as an alternate to the congested U.S. West Coast ports of Long
Beach and Oakland, California. We are the sole provider of rail service to this port and plan to
provide an alternate route for Asian traffic bound for the eastern, southern and midwestern United
States. -27-




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Mexico CityVeracruz.Both TFM and Ferrosur serve the port of Veracruz in the Gulf of Mexico.
We serve Veracruz through a 288-mile route from Mexico City. In 2002, 2003 and 2004, we transported
rail traffic representing $33.6 million, $36.6 million and $32.9 million in revenues, respectively,
through Veracruz, of which approximately 78.9%, 68.2% and 66.1%, respectively, was derived from
import traffic. The rail freight we transport to and from the port of Veracruz includes grains,
steel and mineral products, chemicals and containers. MonterreyMatamoros.Our rail lines include a 203-mile line from Monterrey to Matamoros. We
are the exclusive provider of rail service to Matamoros, which is an alternative to the Nuevo
Laredo border crossing to the U.S. We interchange rail freight at the Matamoros border crossing at
Brownsville, Texas with both the Union Pacific Railroad Company and the BNSF Railway Company. At
Matamoros, we have access to the port of Brownsville, the nearest seaport to Monterrey, through our
interchange with the Union Pacific Railroad. In 2002, 2003 and 2004, we transported rail traffic
representing $46.8 million, $46.1 million and $43.3 million in revenues, respectively, through
Matamoros, of which 80.6%, 73.2% and 77.5%, respectively, consisted of import traffic. Freight
traffic through Matamoros includes grains, steel coils, metal scrap, chemicals and iron slabs. TampicoAltamira.These ports situated in the Gulf of Mexico generated 5.6% of our total
revenues in 2004. In 2002, 2003 and 2004, we transported rail traffic representing $33.8 million,
$38.5 million and $37.2 million in revenues, respectively, through these ports. Kansas City Southern Kansas City Southern, or KCS, is our controlling stockholder. KCSs principal subsidiary,
KCSR, is one of seven Class I railroads in the U.S. The rail network of KCSR, Tex-Mex and TFM
together comprises approximately 6,000 miles of main and branch lines extending from the midwest
portions of the United States south into Mexico. In addition, through a strategic alliance with
Canadian National Railway Company, or CN, and Illinois Central Corporation, or IC, our rail network
covers approximately 25,000 miles of main and branch lines connecting Canada, the United States and
Mexico. The CN and IC alliance connects Canadian markets with major midwestern and southern markets
in the United States, as well as with major markets in Mexico through KCSRs connections with
Tex-Mex and us. We and KCS believe that we are poised to continue to benefit from the growing
north/south trade between the United States, Mexico, and Canada promoted by NAFTA. KCSs rail network, of which we are a part, is further expanded through marketing agreements
between KCSR and Norfolk Southern Railway Company, or Norfolk Southern, the BNSF Railway Company,
and the Iowa, Chicago & Eastern Railroad Corporation, or IC&E. This rail network interconnects with
all other Class I railroads and provides shippers with an effective alternative to other railroad
routes, giving direct access to Mexico and the southeastern and southwestern United States through
less congested traffic hubs. As a result of KCSs acquisition of control over us, we expect to
become more fully integrated into KCSs NAFTA growth strategy, which includes KCSRs established
strategic alliance and marketing agreements with other railroads. Product Categories Our revenues are derived from the movement of a diversified mix of commodities and products
predominantly attributable to cross-border traffic with the U.S. We transport goods in the product
categories of agro-industrial products, cement, metals and minerals, chemical and petrochemical
products, automotive products, manufactured products and industrial products, and intermodal
freight. Our customers include leading international and Mexican corporations. -28-




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The following table sets forth, by product category, our revenues and traffic volumes by
carloads for 2002, 2003 and 2004. For the Year Ended December 31,2002
    
    
    2003
    
    
    2004(1)% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofProduct Category
    
    Carloads
    
    
    Revenues
    
    
    Revenues
    
    
    Carloads
    
    
    Revenues
    
    
    Revenues
    
    
    Carloads
    
    
    Revenues
    
    
    Revenues(in millions)
    
    
    
    
    
    
    
    
    
    
    (in millions)
    
    
    
    
    
    
    
    
    
    
    (in millions)Agro-industrial products
    
    
    110,956
    
    
    $
    140.8
    
    
    
    21.3
    
    
    
    122,114
    
    
    $
    142.9
    
    
    
    22.3
    
    
    
    125,688
    
    
    $
    143.4
    
    
    
    21.6Cements, metals and minerals
    
    
    144,718
    
    
    
    114.8
    
    
    
    17.4
    
    
    
    159,502
    
    
    
    125.4
    
    
    
    19.6
    
    
    
    173,198
    
    
    
    138.2
    
    
    
    20.8Chemical and petrochemical products
    
    
    83,406
    
    
    
    107.7
    
    
    
    16.3
    
    
    
    88,522
    
    
    
    113.2
    
    
    
    17.6
    
    
    
    101,291
    
    
    
    125.7
    
    
    
    18.9Automotive products
    
    
    131,926
    
    
    
    154.1
    
    
    
    23.3
    
    
    
    120,883
    
    
    
    124.7
    
    
    
    19.4
    
    
    
    119,104
    
    
    
    119.8
    
    
    
    18.0Manufactured products, industrial
products
    
    
    82,349
    
    
    
    80.8
    
    
    
    12.2
    
    
    
    87,117
    
    
    
    74.3
    
    
    
    11.6
    
    
    
    97,741
    
    
    
    79.3
    
    
    
    11.9Intermodal freight
    
    
    190,694
    
    
    
    56.3
    
    
    
    8.5
    
    
    
    190,488
    
    
    
    52.4
    
    
    
    8.2
    
    
    
    208,452
    
    
    
    50.5
    
    
    
    7.6Other(2)
    
    
    
    
    
    
    6.0
    
    
    
    0.9
    
    
    
    
    
    
    
    8.5
    
    
    
    1.3
    
    
    
    
    
    
    
    7.3
    
    
    
    1.1TFM
    
    
    744,049
    
    
    $
    660.5
    
    
    
    100.0
    %
    
    
    768,626
    
    
    $
    641.4
    
    
    
    100.0
    %
    
    
    825,474
    
    
    $
    664.2
    
    
    
    100.0
    %Tex-Mex
    
    
    91,550
    
    
    
    51.6
    
    
    
    
    
    
    
    100,814
    
    
    
    57.1
    
    
    
    
    
    
    
    60,176
    
    
    
    35.0Total
    
    
    835,599
    
    
    $
    712.1
    
    
    
    
    
    
    
    869,440
    
    
    $
    698.5
    
    
    
    
    
    
    
    885,650
    
    
    $
    699.2
 ____________________  (1)
    
    Tex-Mex 2004 revenues include seven months as a consequence of the sale of 51% of Mexrail
(Tex-Mexs parent company) to KCS in August 2004.  (2)
    
    Other revenues include complementary railroad services such as haulage, demurrage, switching,
etc. Agro-industrial Products In 2004, $143.4 million, or 21.6% of our total transportation revenues, was derived from the
movement of agro-industrial products, a minor increase from our agro-industrial revenues in 2003. The U.S. and Canada are the dominant suppliers of agricultural products to Mexico and a
significant amount of the agro-industrial products carried over our rail lines are imports,
consisting primarily of grains, grain products (principally corn) and seeds imported to Mexico from
the U.S. and Canada. These products enter Mexico by rail at the U.S. border crossings at Nuevo
Laredo and Matamoros and by ship at the ports of Tampico, Altamira, Veracruz and Lázaro Cárdenas
from where they are transported by rail to storage and processing facilities in Mexico City,
Monterrey, Puebla, Torreón, Veracruz and other cities. Our key customers are Pilgrims Pride de
México, S.A. de C.V., Ragasa Industrias, S.A. de C.V., Comercializadora Internacional Vali, S.A. de
C.V.and Grupo Altex, S.A. de C.V. Cements, Metals and Minerals In 2004, $138.2 million, or 20.8% of our total transportation revenues, was derived from the
movement of cements, metals and minerals. Our revenues generated in this product category increased
by 10.2% from 2003. In 2004, this business unit benefited from the strong performance of the
construction, mining and basic metallic industries. This product category includes metals, minerals and ores such as iron, steel, zinc and copper,
as well as cement. The majority of metals, minerals and ores mined, and steel produced, in Mexico
is used for domestic consumption. The volume of Mexican steel exports fluctuates based on global
market prices. Higher-end finished products such as steel coils used by Mexican manufacturers in
automobiles, household appliances and other consumer goods are imported through Nuevo Laredo and
through the seaports served by our rail lines. Mexican iron and steel mills have historically used modes of transport other than rail for
their finished products because of our predecessors past inability to provide adequate service and
equipment. We believe that the weight and bulk of these products make them well suited to rail
transport and that we are continuing to convert a portion of this traffic from truck to rail
transport by providing reliable service and -29-




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making available the specialized equipment required to haul these heavy metal products by
rail. In addition, most of Mexicos major steel plants and mills are located along our rail lines,
and a large amount of finished products from these mills, are exported to manufacturers in the
U.S., while the remainder is used domestically. We also seek to convert the traffic flowing from
the mines, quarries and smelters within Mexico to our rail lines. We currently transport iron,
steel and other metals, minerals and ore products from mills at Lázaro Cárdenas to steel plants and
mills in northern Mexico, and finished products such as steel coil and hot rolled steel from
Monterrey to the midwestern and western U.S. We also transport steel wire, rod and bars which were
previously moved by ship from the port of Lázaro Cárdenas to the U.S. We also transport finished
products (steel coils), from the U.S. to the Mexican automotive and manufacturing industries. Our
customers include IMSA-MEX, S.A. de C.V., Hylsa, S.A. de C.V., Siderúrgica Lázaro Cárdenas Las
Truchas, S.A. de C.V., Cemex México, S.A. de
C.V., or CEMEX, and Cementos Apasco, S.A. de C.V., or Apasco. Cement is one of the most widely used commodities in construction in Mexico and is produced
throughout the country for both domestic use and export to the U.S.
Two major cement companies in Mexico
which move their products with us are CEMEX and Apasco. Due to its bulk and
density, cement is ill-suited for road transport and, as a result, is hauled almost exclusively by
rail. Chemical and Petrochemical Products In 2004, $125.7 million, or 18.9% of our total transportation revenues, was derived from the
movement of chemical and petrochemical products. Our revenues increased by 11.0% in 2004 from 2003.
Growth in this segment was a consequence of the strong relationship we believe that we enjoy with
PEMEX. Transportation of plastics for M&G Polímeros S.A. de México, Exxon Mobil S.A., Dow
Chemicals and Bulkmatic S.A.contributed to our revenue growth in 2004. Additionally,
transportation of plastics contributed to our revenue growth mainly as a result of conversion from
truck to rail transport. The chemical and petrochemical products we transport consist of petrochemical products
imported from the U.S. into Mexico and domestic traffic consisting of fuel transported from PEMEX
refineries to regional distribution centers and power plants owned by the Comisión Federal de
Electricidad(the Mexican Federal Electricity Commission, or CFE), the Mexican government-owned
electric utility. CFE is a major user of diesel and fuel oil, much of which is transported from
PEMEX refineries to CFE power generating plants near our rail lines. We operate a unit train
dedicated to transporting these fuels for CFE. In 2003, we entered into a contract with PEMEX,
which terminates in 2007, to transport fuel oil from refineries located in Salamanca and Tula to
Lázaro Cárdenas. Automotive Products Our automotive revenues in 2004 were $119.8 million, a decrease of approximately 3.9% from
2003. This revenue reduction is a consequence of the decline in production due to the continued
recession in the U.S. automotive industry and the closure of the DaimlerChrysler plant in Lago
Alberto, and the subsequent relocation of its production facilities to Encantada in Coahuila. The automotive products we transport consist primarily of automotive parts imported into
Mexico for assembly in Mexican auto plants, and finished vehicles exported to the U.S. and Canada,
and to some extent imported finished vehicles. We have started to convert the domestic automobile
distribution market from trucks by investing in automotive ramps at Aguascalientes, Monterrey,
Toluca and Veracruz. We believe that we will enhance our ability to move finished automobiles
cost-effectively in the international and domestic markets and to convert this traffic from truck
to rail transport by providing service superior to that provided by our predecessor and that
provided by the trucking industry. -30-




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Manufactured Products and Industrial Products In 2004, $79.3 million, or 11.9% of our total transportation revenues, were derived from the
movement of manufactured products and industrial products. Our revenues generated in this product
category increased by 6.7% from 2003. The manufactured and consumer products that we transport include home appliances, textiles,
ceramic tile, scrap paper, glass, paper, beer and pulp. We also transport a variety of industrial
products such as machinery, including boilers, generators, turbines, tanks and transformers,
processed foods and nonperishable products. Processed food products produced in Mexico are both
exported for consumption abroad and consumed domestically. Currently, trucks transport a
significant percentage of processed foods and nonperishable products. We believe there are
opportunities for revenue growth in the industrial products segment, including manufactured
products and paper products, mainly through the conversion of Mexican and U.S. companies from truck
to rail transport. We transport beer exported to the U.S. by Mexicos leading beer producers, Grupo Modelo, S.A.
de C.V.and Cervecería Cuauhtémoc Moctezuma, S.A. de C.V., the makers of Corona and Dos Equis,
respectively, and Fomento Económico Mexicano, S.A. de C.V.During 2004, beer freight faced a
contraction in revenues, and we are currently renegotiating our agreements with beer distributors
in the U.S. and continuing our efforts in conversion and traffic recovery. We hope to benefit from
a planned expansion of Modelos plant located in Tuxtepec, Oaxaca, which is expected to triple its
volume. We have a long-term contract with Organización Mabe Corporación, S.A. de C.V., or Mabe, to
transport all of the products it exports to the U.S. and most of the products it distributes
domestically. Mabe is a major Mexican home appliance manufacturer, 49.0% of which is owned by
General Electric Company, or GE, that produces most of the gas and electric ranges sold in the U.S.
under the GE brand and refrigerators exported to the U.S. We believe that bulk products such as paper, including tissue paper, corrugated paper,
newsprint and other packaging paper, and pulp can be shipped at cost-effective rates by rail from
manufacturing plants located near our rail lines to regional distribution centers and directly to
the retailer. The majority of the paper and forest products presently carried on our rail lines
consist of recycled fiber and printing paper imported from the southeastern U.S., Canada and Texas
to paper mills, newspaper publishers, and printers in major population centers in Mexico. Large volumes of paper products are manufactured in Mexico at plants near our rail lines by
companies such as Kimberly-Clark de México, S.A. de C.V., Smurfit S.A.and Grupo Pipsamex, S.A. de
C.V.for domestic and international consumption, or are exported into Mexico by U.S. paper
companies such as MeadWestvaco, International Paper, Rayonier, Pacific and Weyerhaeuser. Intermodal Freight In 2004, $50.5 million, or 7.6% of our transportation revenues, was derived from intermodal
freight, which entails hauling products in freight containers in combination with transport by
water, rail and/or motor carriers, with rail carriers serving as the link between the other modes
of transportation. In 2004, our revenues in this product area decreased by 3.6% from 2003 due to a
decline in the transport of automotive products as a consequence of the recession of the U.S.
automotive industry. The decrease was partially offset by revenues from the conversion of traffic
from truck to rail transport. The automotive industry experienced a slowdown in 2004, as vehicle
production in Mexico decreased 2.2% in 2004 due to demand contraction in the U.S. See Automotive
Products. -31-




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The opening of the port of Lázaro Cárdenas to containers represents an opportunity for further
growth. The volume of intermodal traffic in Mexico with major international maritime companies,
including CP Ships, APL (American President Line), Maersk Sealand, Dicex, S.A., Navemar
Internaciónal, S.A. de C.V.and Mediterranean Shipping Company has been increasing in recent years.
Increasing the quality and frequency of our services to maritime ports has enabled us to convert
some of this intermodal traffic from truck to rail transport. Seasonality The majority of our customers are industrial in nature, including automobile manufacturers,
grain distribution companies and industrial plants. Our sales revenue typically increases during
the third quarter of our fiscal year due to a number of factors, including increased production and
overstocking of inventory by our customers in anticipation of the end of the year holiday season
and also as a result of changes in our customers order patterns in response to the annual
announcement of price increases for the next year. Such factors demand an increase in the level
of our operations which typically results in an increase in our sales revenue for the third quarter
of our fiscal year. We typically experience a decrease in sales revenue at the end of our fourth
quarter and beginning of our first quarter due to a decrease in our customers productivity during
the Christmas holidays. Sources and Availability of Raw Materials All of the locomotives we operate are diesel-powered, and our fuel expenses are a significant
portion of our operating expenses. We meet, and expect to continue to meet, our fuel requirements
almost exclusively through purchases at market prices from PEMEX. We are party to a fuel supply
contract with PEMEX which may be terminated at any time by either party upon 30-days written notice
to the other. We experienced increases and decreases of 24.2% in 2003 and 13.8% in 2002,
respectively in our average price of fuel per gallon. In 2004, our average price of fuel per
gallon increased by 30.1% from 2003. The price of diesel fuel may continue to increase, which
could have an adverse effect on our future results of operations. Sales and Marketing Our marketing and sales efforts are designed to grow and expand our current customer base
business through focusing on truck conversion up the supply chain, and securing existing traffic
with current customers through long-term contracts. Emphasis is being placed on attracting new
business in the U.S., Canada and Mexico. We believe these efforts will benefit to a great extent
from NAFTA. With respect to intermodal customers and customers shipping commodities such as
chemicals and automotive products, we seek to capitalize upon our strategic advantage resulting
from our direct access to key ports and interchange points through our rail lines, which connect
with the extensive route structures of Tex-Mex, KCSR, the Union Pacific Railroad, BNSF Railway
Company and other major U.S. and Canadian rail carriers. We have also established arrangements with
railroads throughout the U.S. that are expected to increase intermodal business on routes between
intermodal terminals in the U.S. and Mexico. By offering intermodal double-stack services to and
from Mexican markets and by quoting a single rate for carload shipments between Mexican and U.S.
points of destination, we expect to attract new business in both Mexico and the U.S. We have devised, implemented and will continue to implement several customer service
initiatives in connection with our marketing efforts. These include the designation of customer
sales territories and assignment of customer service teams to particular customers, the
introduction of a web site that provides our customers with access to their car and rate
information and the employment of -32-




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several sales and customer service representatives throughout the U.S. to generate through
traffic from U.S. railroads and monitor interline activity. A significant portion of our contracts are both quoted and settled in Dollars, and the vast
majority of additional freight services are quoted in Dollars and settled at a Dollar-Peso exchange
rate which approximates a Dollar-denominated contract. We are continuing to move forward with
executing Dollar-denominated contracts, and we believe that a majority of our contracts are
currently denominated in Dollars. Approximately 56.0% of our total revenues in 2004 were
denominated in Dollars. We have installed an online waybill monitor that reports all service orders on the hour, by
station, product segment, and customer identification. This system allows on-the-spot reporting of
sales for the day, month or year. Insurance Our business is subject to a number of risks, including: (i) mechanical failure; (ii)
collision; (iii) property loss; (iv) cargo loss or damage; and (v) business interruption due to
natural disasters, political circumstances, hostilities and labor strikes. In addition, the operation of any railroad is subject to the inherent possibility of
catastrophic disaster, including chemical spills and other environmental mishaps. Our present insurance coverage insures against the accident-related risks involved in the
conduct of our business, and is consistent with industry practice and the requirements of the
concession and the Mexican railroad services law and regulations. Our insurance policy also
provides for per-incident maximum amounts which vary depending upon the nature of the risk
insured against. Our policy is renewable on an annual basis and expires in June 2005. We are in
the process of renewing these policies. We can give no assurance, however, that all risks are or
will be adequately insured against, that any particular claims will be paid or that we will be able
to procure adequate insurance coverage at commercially reasonable rates in the future. The Mexican
railroad services law and regulations provide that, if we receive insurance proceeds in respect of
any damage to our rail lines, those proceeds shall be applied to the repair or remediation of such
damage or, in the event that we elect not to undertake such repairs, these proceeds must be paid to
the Mexican government. SICOTRA We have a license to use SICOTRA, a Union Pacific Technologies system, for among other
purposes, the reporting of car movements in train and yard operations and the processing of bill of
lading information. We have trained personnel to use SICOTRA and have taken and continue to take
steps to customize SICOTRA applications for our operations. Management Control System In 2005, we plan to upgrade our communication infrastructure and systems in anticipation of
installing KCSs computerized management control system, or MCS, in 2006. This state-of-the-art
system will replace SICOTRA and is designed to provide better analytical tools for management to
use in its decision-making processes. MCS, among other things, delivers work orders to yard and
train crews to ensure that the service being provided reflects what was sold to the customer. The
system also tracks individual shipments as they move across the rail system, compares that movement
to the service sold to the customer and automatically reports the shipments status to the customer
and to operations management. If a shipment falls behind schedule, MCS automatically generates
alerts and action recommendations so that corrective action can be initiated promptly. -33-




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We expect MCS to provide better analytical tools for management to use in its decision-making
process. We anticipate that MCS will provide more accurate and timely information on, among other
things, terminal dwell time, car velocity through terminals and priority of switching to meet
schedules. A data warehouse is expected to provide an improved decision support infrastructure. By
making decisions based upon that information, we expect to improve service quality and utilization
of locomotives, rolling stock, crews, yards, and line of road and thereby reduce cycle times and
costs. With the implementation of service scheduling, we also expect MCS to provide improved
customer service through improved advanced planning and real-time decision support. By designing
all new business processes around workflow technology, we expect to more effectively follow key
operating statistics to measure productivity and improve our operating performance. We expect MCS to improve clerical and information technology group efficiencies. We believe
that information technology and other support groups will be able to reduce maintenance costs,
increase their flexibility to respond to new requests and improve productivity. By using a layered
design approach, MCS is expected to have the ability to extend to new technology as it becomes
available. MCS can be further modified to connect customers with additional applications via the
Internet and is intended to be constructed to support multiple railroads, permit modifications to
accommodate the local language requirements of the area and operate across multiple time zones. A
later enhancement of MCS is expected to also include revenue and car accounting systems. Train Dispatching System We have modernized and upgraded our train dispatching system. We are presently utilizing two
types of train dispatching systems:  
    
    A radio-based track warrant control system is in place over approximately 1,745
miles of track, or approximately 66% of our rail lines. It utilizes direct radio
communication between dispatchers and engineers combined with specific track
assignments to coordinate train movements and dispatching.
    
    A centralized traffic control system, or CTC system, which allows a central
dispatcher in Monterrey to manage track operations between Mexico City and Nuevo
Laredo, is in place over an aggregate distance of 891 track miles or approximately 34%
of the total tracks of our rail lines. To improve operating efficiencies, the dispatchers covering all portions of our rail lines,
under both the radio-based track warrant control and CTC systems, are now using the same computer
system. This has improved train dispatching by providing dispatchers with a single graphical
interface representing our entire rail system. This system also allows for recording of train
arrivals, departures, delays and other important data with which operation efficiency analysis is
performed. This information is used for payroll and personnel administration purposes. Documentation and Billing System We have developed, tested and fully implemented a state-of-the-art documentation and billing
system that allows our clients to use the Internet to track and trace their railcars, access
online documentation (including account statements) and use predetermined templates to expedite the
process and ensure consistency and quality of information. -34-




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Online Customer Service In the customer service area, we have converted our Internet home page into a comprehensive
tool permitting customers to track the delivery of their shipments and obtain a wide range of
information regarding our services. Besides providing information about our business areas and
services, our web site provides customers with access to multiple services including:  
    
    electronic waybilling;
    
    Track and Trace;
    
    AEI (Automatic Equipment Identification) readouts;
    
    TFM graphical rail network;
    
    equipment order monitoring;
    
    rates inquiries;
    
    equipment historical information;
    
    an automatic delivery reporting feature which can be customized by the user
based on the day of the week and delivery time and can handle up to 10 delivery
recipients;
    
    invoice inquiries; and
    
    train schedule and other information. Competition We face significant competition from trucks and other railroads and expect such competition to
continue to be significant. In general, most freight in Mexico is transported by truck or rail.
Freight terminating or originating in our service territory is primarily transported by truck.
Competition with other modes of transportation is generally based on rates charged, as well as the
quality and reliability of the service provided. We believe that other competitive factors for
freight transport are lead time for orders, protection of goods, transit time, adequacy of the
equipment and the provision of other value added services such as traceability of shipments and
availability of shipping rates through the Internet. Some segments of our freight traffic, notably intermodal freight, experience price competition
from trucks, although the operating efficiencies we are achieving may lessen the impact of price
competition. Although truck transport has generally been more expensive than rail transport, in
some circumstances, the trucking industry can provide effective rate and service competition,
because trucking requires smaller capital investments and maintenance expenditures and allows for
more frequent and flexible scheduling. While the Mexican rail system was operated by FNM, trucking
increased its market share relative to rail transport in Mexico as a result of the rail sectors
poor customer service, unreliability and lack of car availability. We believe that we have
corrected most of the service related problems experienced under FNMs operation and we are
beginning to make inroads in capturing market share from the trucking industry. We believe that we may be able to capture freight traffic currently being carried by truck in
part as a result of the following factors: -35-




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
    
    Rail transport prices are generally lower than truck prices. This is due in
part to the fact that less labor is required to haul cargo by rail.
    
    With our customer service structure and substantial capital improvements, we
believe that we have created a customer oriented business which, together with our
other competitive advantages, are making our freight services more attractive than
those presently offered by trucking concerns. We also face competition from the other privatized railroads in Mexico, particularly from
Ferromex. We have experienced, and continue to experience, competition from Ferromex in respect of
the transport of steel freight, which has had, and continues to have, an adverse effect on our
operating results. Ferromexs rail lines link Mexico City with U.S. border crossings at Piedras
Negras, Ciudad Juárez, Nogales and Mexicali and also serve the city of Guadalajara and the ports of
Tampico on the Gulf of Mexico and Manzanillo on the Pacific Ocean.
The Union Pacific Corporation owns
a minority interest in Ferromex. Ferromex directly competes with us in some areas of our service
territory, including Tampico and Mexico City. We experience aggressive price competition with
Ferromex in freight rates for agricultural products, because these are not time sensitive
commodities and therefore can afford to be transported using longer routes. This rate competition
has adversely affected and may continue to adversely affect our financial results. In addition, we
encounter direct competition from Ferrosur on the Mexico City to Veracruz route. Under our concession, we are required to grant trackage rights to Ferromex, Ferrosur, two
short line railroads and FTVM. These rights will give Ferromex more direct access to the Querétaro
and Mexico City markets. In turn, the other railroads are required to grant rights to TFM which
will allow us to directly access, among others, the Guadalajara market, Mexicos third largest
industrial and commercial center. The Mexican railroad services law and regulations and the concession contain various other
provisions designed to introduce competition in the provision of railroad services. While the
Mexican railroad services law and regulations allow us to establish our operating policies and
freight service rates, we are subject to limited rate regulation in certain circumstances. With
respect to freight services over our rail lines, the Ministry of Transportation may grant
concessions to third parties or rights to other rail carriers additional to those set forth in the
concession beginning in June 2027. Although we believe that services provided within our service territory by maritime
transportation are generally complementary to our operations, we do face limited competition from
the shipping industry with respect to certain products, including chemicals transported by barges. In February 2001, a NAFTA tribunal ruled in an arbitration between the U.S. and Mexico that
the U.S. must allow Mexican trucks to cross the border and operate on U.S. highways. Under NAFTA,
Mexican trucks were to have unrestricted access to highways in the U.S. border states by 1995 and
full access to all U.S. highways by January 2000. However, the U.S. did not follow the timetable
because of concerns over Mexicos trucking safety standards. On March 14, 2002, as part of its
agreement under NAFTA, the U.S. Department of Transportation issued safety rules that allow Mexican
truckers to apply for operating authority to transport goods beyond the 20-mile commercial zones
along the U.S.-Mexico border. These safety rules require Mexican carriers seeking to operate in the
U.S. to pass, among other things, safety inspections, obtain valid insurance with a U.S. registered
insurance company, conduct alcohol and drug testing for drivers and obtain a U.S. Department of
Transportation identification number. Under the rules issued by the U.S. Department of
Transportation, it was expected that the border would have been opened to Mexican carriers in 2002.
However, in January 2003, in response to a lawsuit filed in May 2002 by a coalition of
environmental, consumer and labor groups, the U.S. Court of Appeals for the Ninth Circuit in San
Francisco issued a ruling which held that the rules issued by the U.S. Department of Transportation
violated federal environmental laws because it had failed to adequately review the impact on air
quality in the U.S. of rules allowing -36-




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Mexican carriers to transport beyond the 20-mile commercial zones along the U.S.-Mexico
border. The Court of Appeals ruling required the U.S. Department of Transportation to perform an
Environmental Impact Statement of the Mexican truck plan and to certify compliance with the U.S.
Clean Air Act requirements. The U.S. Department of Transportation subsequently requested the U.S.
Supreme Court to review the Court of Appeals ruling and, on December 15, 2003, the U.S. Supreme
Court granted the U.S. Department of Transportations request. On June 7, 2004, the U.S. Supreme
Court unanimously overturned the Court of Appeals ruling. Although the U.S. Department of
Transportation is no longer required to perform an Environmental Impact Statement under the U.S.
Supreme Courts ruling, the U.S. and Mexico must still complete negotiations regarding safety
inspections before the border is opened. We cannot predict when these negotiations will be
completed. See Item 3. Key InformationRisk FactorsRisk Factors Relating to Our Business
Significant competition from other railroads could adversely affect our financial condition and
Significant competition from trucks could adversely affect our financial condition. Basis for Competitive Statements The basis for our statements regarding our competitive position consists of our analysis of
financial and statistical information about our competitors made publicly available by the Bolsa
Mexicana de Valores, S.A. de C.V.(the Mexican Stock Exchange) and the AAR. Government Regulation Railroad Regulation The Mexican railroad services law and regulations provide the overall general legal framework
for the regulation of railroad services in Mexico. Under the Mexican railroad services law and
regulations, a provider of railroad services, such as us, must operate under a concession granted
by the Ministry of Transportation. Such a concession may only be granted to a Mexican corporation
and may not be transferred or assigned without the approval of the Ministry of Transportation. The
law permits foreign investors to hold up to 49.0% of the capital stock of such a corporation,
unless otherwise authorized by the Mexican Foreign Investment Commission. On October 5, 2004, KCS
was notified by the Mexican Foreign Investment Commission of its approval of KCSs acquisition of
Grupo TMMs interest in Grupo TFM, allowing KCS to become the indirect controlling owner of TFM. We
are also subject to the Ley General de Bienes Nacionales (the General Law on National Assets),
which regulates all assets that fall within the public domain and by various other laws and
regulations. The Ministry of Transportation is principally responsible for regulating railroad services in
Mexico. The Ministry of Transportation has broad powers to monitor our compliance with the
concession, and it can require us to supply it with any technical, administrative and financial
information it requests. We must comply with the investment commitments established in our business
plan, which forms an integral part of the concession, and must update the plan every five years.
The Ministry of Transportation treats our business plans confidentially. The Ministry of
Transportation monitors our compliance with efficiency and safety standards as set forth in the
concession. The Ministry of Transportation reviews, and may amend, these standards every five
years. The Mexican railroad services law and regulations provides the Mexican government certain
rights in its relations with us under the concession, including the right to take over the
management of TFM and our railroad in certain extraordinary cases, such as imminent danger to
national security. In the past, the Mexican government has used such a power with respect to other
privatized industries, including the telecommunications industry, to ensure continued service
during labor disputes. -37-




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In addition, under the concession and the Mexican railroad services law and regulations, the
Ministry of Transportation, in consultation with the Mexican Antitrust Commission, under certain
circumstances may determine that there is a lack of competition in the railroad industry, in which
case the Ministry of Transportation would have the authority to set our rates for rail freight
services. See Item 3. Key InformationRisk FactorsRisk Factors Relating to Our BusinessThe Mexican
government may revoke or limit our concession under a number of circumstancesand The rates for
trackage rights set by the Ministry of Transportation may not adequately compensate us. Environmental Regulation Our operations are subject to Mexican federal laws and regulations relating to the protection
of the environment. The primary environmental law in Mexico is the General Law of Ecological
Balance and Environmental Protection. The Mexican federal agency in charge of overseeing compliance
with, and enforcing the federal environmental laws is the Secretaría del Medio Ambiente y Recursos
Naturales(Mexican Ministry of Environmental Protection and Natural Resources). The Procuraduría
Federal de Protección al Ambiente(Mexican Attorney General for Environmental Protection) has the
power to bring administrative proceedings and impose corrective actions and economic sanctions
against companies that violate environmental laws, and temporarily or permanently close
non-complying facilities. The Ministry of the Environment and Natural Resources and other
authorized ministries have promulgated standards for, among other things, water discharge, water
supply, emissions, noise pollution, hazardous substances, and transportation and handling of
hazardous and solid waste. In addition, we are subject to the environmental laws and regulations
issued by the Mexican governments of each of the states of Mexico where our facilities are located.
The terms of the concession also impose on us certain environmental law compliance obligations. Noncompliance with applicable legal provisions may result in the imposition of fines,
temporary or permanent shutdown of operations or other injunctive relief, criminal prosecution or
the termination of our concession. We believe that all facilities that we operate are in
substantial compliance with applicable environmental laws, regulations and agency agreements. There
are currently no material legal or administrative proceedings pending against us with respect to
any environmental matters, and management does not believe that continued compliance with
environmental laws will have a material adverse effect on our financial condition or results of
operations. We cannot predict the effect, if any, that the adoption of additional or more stringent
environmental laws and regulations would have on our results of operations, cash flows or financial
condition. -38-




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C.          ORGANIZATIONAL STRUCTURE Corporate Structure TFM is owned 80.0% by Grupo TFM, comprising 100.0% of TFMs unrestricted voting shares, and
20.0% by the Mexican government, consisting of restricted voting shares. Grupo TFM acquired its
equity interest in TFM in connection with the privatization of the Northeast Rail Lines. On April 20, 2003, Grupo TMM and KCS entered into the Acquisition Agreement, or the Original
Acquisition Agreement, under the terms of which Grupo TMM was to sell its entire interest in Grupo
TFM to KCS. The Original Acquisition Agreement was not consummated due to disputes arising between
the parties which led to litigation and arbitration. On August 16, 2004, Grupo TMM and KCS agreed
to the sale by TFM of shares representing 51.0% of Mexrail to KCS for approximately $32.7 million.
On December 15, 2004, KCS and Grupo TMM entered into the Amended and Restated Acquisition
Agreement, amending and restating the Original Acquisition Agreement, whereby Grupo TMM would sell
its 51.0% voting interest in Grupo TFM to KCS for $200 million in cash, 18 million shares of KCS
common stock, a $47 million two-year promissory note, and up to $110 million payable in a
combination of cash and KCS common stock upon successful resolution of the current proceedings
related to the VAT claim and the Mexican governments put right against Grupo TFM. On April 1,
2005, KCS and Grupo TMM, completed the transaction and KCS acquired control of TFM through the
purchase of shares of the common stock of Grupo TFM belonging to Grupo TMM. As a result of the
transaction, KCS now has a controlling interest in Grupo TFM, consisting of a 75.4% of the
outstanding shares (100% of the shares of Grupo TFM entitled to full voting rights). By virtue of
Grupo TFMs ownership interest in TFM, KCS has a controlling interest in TFM. Grupo TMM is now a
shareholder of KCS. Our ownership structure is illustrated by the following chart: -39-




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(FLOWCHART) 
 (1)
    
    Grupo TFM holds the remaining 2% of the capital stock of Arrendadora TFM. Mexrail On March 27, 2002, we acquired from Grupo TMM and KCS all of the outstanding stock of Mexrail.
Mexrail owns all of the capital stock of Tex-Mex. On May 9, 2003, we sold a 51.0% interest in
Mexrail to KCS pursuant to a stock purchase agreement dated April 15, 2003. The Mexrail stock sold
by TFM was to remain in an independent voting trust pending approval of the transaction by the STB.
Within two years of the date of the Mexrail sale agreement, TFM had the right to repurchase all of
the shares from KCS at any time for an amount equal to the purchase price. Such right was
unconditional and could be exercised in the sole discretion of TFM by written notice to KCS given
by the chairman of TFM and without any other corporate approvals of TFM or Grupo TMM. In August
2003, TFM gave notice to KCS of exercise of its right to repurchase the shares representing an
aggregate 51.0% interest in Mexrail. On September 23, 2003, the STB issued a decision finding no
need to rule on the transfer back to TFM of the 51.0% interest in Mexrail. On September 30, 2003,
TFM completed the repurchase of such shares at a purchase price of $32.6 million, which is the same
amount received by TFM in May 2003, upon closing of the sale of such shares to KCS. TFM funded
this transaction with its existing cash balances. Upon completion of the repurchase, TFM again
owned 100% of Mexrail. -40-




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On August 16, 2004 we entered into an agreement with KCS to sell TFMs shares in Mexrail
representing 51% ownership of Mexrail for approximately $32.7 million. The sale was made on terms
substantially similar to those previously agreed to by the parties in April of 2003. Mexrail
wholly owns Tex-Mex, a U.S. based shortline railroad that connects the KCRS with TFM. Upon the
execution of such agreement and the fulfillment of the relevant conditions, KCS will acquire
control over 100% of the shares of Mexrail. On November 29, 2004 the STB approved KCSs application for authority to control Tex-Mex and
the U.S. portion of the international rail bridge at Laredo, Texas. The Mexrail shares, which had
been placed in a voting trust pending the regulatory approval, where released to KCS. KCS is
obligated to purchase the remaining shares of Mexrail owned by TFM on or before October 31, 2005 at
a price of $31.4 million. Arrendadora TFM Arrendadora
TFM, S.A. de C.V., or Arrendadora TFM, our 98%-owned subsidiary, was incorporated on September 2002 as a sociedad
anónima de capital variable(variable capital corporation), under the laws of Mexico, and its only
operation is the leasing to us of the locomotives and cars acquired by us through the privatization
and subsequently transferred by us to Arrendadora TFM. Mexico Valley Railroad and Terminal FTVM was incorporated as a sociedad anónima de capital variable(variable capital
corporation), under the laws of Mexico. The corporate purpose of the company is to provide railroad
services as well as ancillary services, including those related to interconnection, switching and
haulage services. TFM holds 25.0% of the share capital of this company. The other shareholders of
the company, each holding 25.0%, are Ferromex, Ferrosur and the Mexican government. D.          PROPERTY, PLANTS AND EQUIPMENT Description of Property Our headquarters, which we lease, are located at Av. Periférico Sur No. 4829, 4to. Piso, Col.
Parques del Pedregal, México, D.F. 14010, México. We also have offices at Av. Manuel L. Barragán
4850 Norte, Colonia Hidalgo, C.P. 64420, Monterrey, Nuevo León, México. We also own several
freight yards located along our rail lines. Under the concession, we have the right to operate our
rail lines, but we do not own the land, roadway or associated structures. For a discussion of our right to use property under our concession see History and
Development of the Company and Business Overview ̄The Concession. For a discussion of certain
risks related to the property and equipment we own or have the right to use, and restrictions
regarding our ability to encumber our property see Item 3. Key InformationRisk Factors ̄Risk
Factors Relating to Our BusinessThe Mexican government may revoke or limit our concession under a
number of circumstances. For a discussion of environmental issues that may affect our utilization
of our property, see Business Overview ̄Government RegulationEnvironmental Regulation. -41-




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Track As of December 31, 2004, our rail lines consisted of the following track: Under
    
    
    Track UsageConcession
    
    
    Rights
    
    
    Total(in miles)Main track
    
    
    2,636
    
    
    
    541
    
    
    
    3,177Sidings under centralized traffic control
    
    
    120
    
    
    
    
    
    
    
    120Spurs, yard tracks and other sidings
    
    
    507
    
    
    
    
    
    
    
    507Total
    
    
    3,263
    
    
    
    541
    
    
    
    3,804
 All of our track is standard gauge (56.5 inches) and is generally in good condition. Of
our 2,636 miles of main track, 100.0% has 100 to 136-lbs. rail and approximately 78.0% is
continuously welded rail. Continuously welded rail reduces track maintenance costs and, in
general, permits trains to travel at higher speeds. The maximum allowable speed of trains along
our core routes varies between 30 mph and 50 mph. As of December 31, 2004, we have 24 sidings on
our main track of up to 10,000 feet enabling longer trains to pass or meet each other. The following table sets forth certain information with respect to our track as of December
31, 2004: Main Line - Mexico Cityto Nuevo Laredo
    
    
    All Lines(in miles)Continuously welded rail
    
    
    931
    
    
    
    2,047Jointed rail
    
    
    0
    
    
    
    589Total
    
    
    931
    
    
    
    2,636Concrete ties installed
    
    
    855
    
    
    
    1,556Wood ties installed
    
    
    76
    
    
    
    1,080Total
    
    
    931
    
    
    
    2,636
 The portion of the Mexico CityNuevo Laredo core route between Mexico City and Querétaro
(approximately 143 miles) has double track, which accommodates greater traffic volume and maximum
allowable speeds of approximately 50 mph. Our rail lines support a weight of 130 tons per railcar. We run freight trains at average speeds of approximately 25 to 50 mph along our core routes
between Mexico City and the U.S. border. Approximately 85.0% of our main line track handles speeds
of up to 37 mph. Installations along our rail lines include supply centers, locomotive inspection centers, car
inspection areas, repair shops, warehouses, freight yards and intermodal terminals. Bridges, Tunnels and Culverts Our core routes and feeder lines include 1,226 bridges having a total length of 15.7 miles of
which 1,111 are permanent and 115 are temporary; 301 are steel structures, 810 are concrete
structures and 115 have inverted floor systems made of timber or mixed components. There are 98 tunnels on our rail lines, having a total length of 16.7 miles. Tunnels on our
main lines allow for the passage of double-stack trains. In addition, there are 7,273 culverts
along the railway. -42-




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Equipment Our locomotive fleet consists of 473 locomotives, of which 467 are diesel. Electro Motive
Division, or EMD, built 243 and GE built 224 of these diesel locomotives. We are party to
long-term leases for 150 AC-traction locomotives. Through our long-term leasing program, we are
improving locomotive efficiency and utilization by adding to our fleet state-of-the-art locomotives
that provide an average of 40.0% more horsepower per unit, compared to our 3000 horsepower road
engines, and 73.5% more horsepower compared to our previous total horsepower base, allowing us to
haul longer trains with fewer locomotives. We have continued a decrease in fuel consumption due
primarily to the fuel efficiency of these new locomotives and the fact that fewer locomotives are
needed to haul the same freight. Our long-term locomotive leases are for terms of 20 years. We lease some of the locomotives
in our fleet to Tex-Mex. The average age of the locomotives in our fleet is approximately 15.9
years, which we believe is one of the youngest locomotive fleets operated by a Class I railroad.
The average remaining useful life of the locomotives in our fleet is about 11 years. Of the 473 locomotives in our fleet, approximately 264 are assigned to the hauling of freight,
50 are used for yard work, 26 locomotives are subleased to third parties (of which 16 are subleased
to KCSR), 69 locomotives are running on the KCS and Tex-Mex lines under a horsepower-per-hour
interchange agreement, 6 locomotives are electric (and out of service) and 23 of our yard and road
engines are currently in storage. We use the remaining 35 units for miscellaneous purposes such as
maintenance of way trains and industry switching. The following table describes our locomotive fleet and maintenance contractors, as more fully
described under Improvements, Maintenance and Repair, as of December 31, 2004. Number
    
    
    
    
    
    
    YearMake
    
    Type
    
    of Units
    
    
    Number of Axles
    
    Horsepower
    
    Built
    
    Maintained ByOwnedEMD
    
    SW1504
    
    
    15
    
    
    4
    
    1,500
    
    1973
    
    MPI/GETSEMD
    
    MP15AC
    
    
    11
    
    
    4
    
    1,500
    
    1983
    
    MPI/GETSEMD
    
    GP38-2
    
    
    50
    
    
    4
    
    2,000
    
    1975-83
    
    MPI/GETSEMD
    
    SD45
    
    
    1
    
    
    6
    
    3,600
    
    1978
    
    MPI/GETSEMD
    
    SD40
    
    
    52
    
    
    6
    
    3,000
    
    1968-72
    
    MPI/GETSEMD
    
    SD40-2
    
    
    39
    
    
    6
    
    3,000
    
    1973-88
    
    MPI/GETSGE
    
    B23-7
    
    
    7
    
    
    4
    
    2,250
    
    1981
    
    AlstomGE
    
    C30-7
    
    
    38
    
    
    6
    
    3,000
    
    1982-89
    
    AlstomGE
    
    SUPER 7
    
    
    104
    
    
    6
    
    3,000
    
    1990-94
    
    AlstomGE
    
    E-60 (Elect.)
    
    
    6
    
    
    6
    
    6,000
    
    1984
    
    AlstomTotal owned
    
    
    
    
    323Long-Term
Lease(1)GE
    
    AC4400CW
    
    
    75
    
    
    6
    
    4,400
    
    1998-2000
    
    GETSEMD
    
    SD70MAC
    
    
    75
    
    
    6
    
    4,000
    
    1999-2000
    
    GMMTotal under
long-term lease
    
    
    
    
    150
 
 (1)
    
    AC-traction locomotives. -43-




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Railcars owned and leased by us as of December 31, 2004 consisted of the following: Owned
    
    
    LeasedBox cars
    
    
    1,188
    
    
    
    869Gondolas
    
    
    1,827
    
    
    
    2,575Covered hoppers
    
    
    570
    
    
    
    2,816Flat cars
    
    
    557
    
    
    
    306Bi-level carriers
    
    
    0
    
    
    
    1,287Spine cars
    
    
    0
    
    
    
    48Tank cars
    
    
    71
    
    
    
    818Cabooses
    
    
    51
    
    
    
    0Open top hoppers
    
    
    10
    
    
    
    0Office cars
    
    
    4
    
    
    
    0Total
    
    
    4,278
    
    
    
    8,719
 To supplement our fleet of owned railcars, we have implemented an operating lease program
that allows us to effectively manage our car supply to meet the varying demands of our traffic
volumes. Our leased cars consist of covered hoppers used to transport grain, new and rebuilt
gondolas, box cars, open top hoppers, flat cars and bi-level carriers. We also lease automobiles,
large and small trucks and other equipment for a variety of functions. In addition, we are
refurbishing some of our railcars with funds from working capital. At our commencement of
operations, we had a substantial shortage of box cars and grain hoppers. Through our agreements
with U.S. railroads regarding car hire and our operating lease program, we have increased our fleet
size and eliminated these shortages. Improvements, Maintenance and Repair We have entered into locomotive maintenance agreements with Alstom Transporte, S.A. de C.V.,
or Alstom, GE Transportation Systems México, S.A. de C.V., GETS Locomotive Services, S.A de C.V.,
MPI Noreste, S.A. de C.V.or MPI (which was recently acquired by GE Transportation Systems México,
S.A. de C.V.) and General Motors de México S. de R.L. de C.V.or GMM, under which these contractors
provide both routine maintenance and major overhauls. Routine maintenance includes periodic
inspections, oils and lubricants, filters, maintenance of wheel profiles, compression and other
engine checks and all repairs. Our locomotives are inspected in full compliance with the
regulations of the U.S. Federal Railroad Administration, or FRA, which enables our locomotives to
operate in the U.S. pursuant to interchanges with major U.S. railroads. Major overhauls are
performed every 600,000 to 750,000 miles for our owned locomotives, and every 1,000,000 miles for
the new leased locomotives. Our maintenance contracts require that our locomotives be available
for freight service 93.0% of the time. We believe that the outsourcing of our locomotive maintenance allows us to focus more on
implementing our operating initiatives in order to provide efficient and reliable rail service. By
outsourcing we also avoid the need to incur the significant expenditures associated with locomotive
maintenance facilities. Our locomotive maintenance contract with MPI/GETS expires in 2014, our
maintenance contract with Alstom expires in 2009 and our contracts with GE and GMM expire in 2020.
GE recently acquired MPI and certain MPI affiliates. We, therefore, renegotiated our existing
agreements with GE and MPI. Our maintenance-of-way personnel coordinate the maintenance of our track, hiring third parties
primarily to perform roadway repairs and track laying and surfacing. We also purchase other
maintenance-of-way services from time to time, including when we lack in-house expertise to perform
services or when the nature or location of the required maintenance work makes the hiring of third
parties a cost-effective alternative to utilizing our personnel to perform such maintenance. -44-




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In the operations area, we have implemented certain systems designed to enhance the safety and
availability of our fleet and the efficiency of our rail service. We are using an extensive
locomotive help desk system designed to improve management of locomotive maintenance, reporting of
mechanical problems and repairs. This system includes a scheduling feature, an interface
permitting maintenance personnel to record data on repairs and statistics on various efficiency
indicators. In addition, we have implemented a car repair and billing system to expedite
collections for mechanical repairs performed to the fleet of other railroads in accordance with AAR
standards. This system provides all repair validations and an AAR pricing catalog. Our new
shipper car order system, which is expected to extend our scheduling and car pool management
capabilities, is currently in production. Refurbishing of Our Route In May 2000, we entered into a track maintenance and rehabilitation agreement with Alstom
pursuant to which it is providing both routine and major rehabilitation of our Celaya-Lázaro
Cárdenas line, which comprises approximately 350 miles of track. In each of 2003 and 2004, our
maintenance and rehabilitation expenses under this contract amounted to $3.4 million. Under this
agreement, we are committed to paying a total of approximately $97.0 million for maintenance and
rehabilitation of this route over a period of 12 years. As of December 31, 2004, we have paid
$58.2 million from working capital under this agreement. For a discussion of our capital improvements program, see Item 3. Key InformationRisk
FactorsRisk Factors Relating to Our BusinessFailure to make capital expenditures could result in
the revocation of our concession and adversely affect our financial condition, Item 4.
Information on the CompanyBusiness Overview  Business Strategy and Item 5. Operating and
Financial Review and ProspectsLiquidity and Capital Resources  Capital Expenditures. 
 ITEM 5.          OPERATING AND FINANCIAL REVIEW AND PROSPECTS A.          OPERATING RESULTS The following discussion and analysis relates to the financial condition and results of
operations of TFM and Grupo TFM for the relevant periods and is based on, and should be read in
conjunction with, TFMs financial statements and Grupo TFMs financial statements, respectively,
appearing elsewhere in this annual report. The following discussion and analysis contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under Item 3. Key InformationRisk Factors. See
Forward-Looking Statements for cautionary statements concerning forward-looking statements. Overview Our revenues are derived from the movement of a diversified mix of commodities and products
predominantly attributable to cross-border traffic with the U.S. We transport goods in the product
categories of agro-industrial products, industrial products and manufactured products, cement,
metals and minerals, chemical and petrochemical products, automotive products, and intermodal
freight. Our customers include leading international and Mexican corporations. Our revenues for the year ended December 31, 2004, without the consolidation of Mexrail, were
$664.2 million, compared to $641.4 million for the year ended December 31, 2003, which represents
an increase of $22.8 million or 3.6% over 2003. Our revenues in 2004 were negatively impacted by a
decrease -45-




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in revenues from the automotive industry of $4.9 million or 3.9% in 2004 from 2003, which was
partially offset by an increase in revenues from the conversion of traffic from truck to rail
transport, and a general increase in revenues from other product categories. Our business is subject to a number of macroeconomic factors that affect our operating
results, including the circumstances described elsewhere in this annual report under Risk
Factors. These include factors outside our control, such as (i) the impact of inflation, political
developments, exchange rates and other factors tied to Mexico, (ii) seasonality in our business and
that of our customers as described under Item 4. Information on the CompanyBusiness
OverviewSeasonality, (iii) our dependence on global fuel prices for our operations, and (iv) our
continuing obligations to the Mexican government arising out of the privatization of our rail lines
in 1997 and our concession, including our obligations in respect of required capital expenditures. In addition, as described herein and in the notes to our financial statements, we have
contingencies related to the resolution of various disputes with the Mexican government relating to
our VAT refund and our 1997 tax audit. See Item 8. Financial InformationConsolidated Statements
and Other Financial InformationLegal ProceedingsDisputes with Mexican Government. Lastly, our
results for 2004 have also been affected by our sale to KCS in August 2004 of a 51% interest in
Mexrail, as a result of which, we consolidated only seven months of Mexrails results during 2004. Financial Presentation and Accounting Policies Accounting Considerations Our financial statements are prepared in accordance with IFRS, which differs in certain
material respects from U.S. GAAP. Effective May 2002, IFRS is the new term for the entire body of
accounting standards issued by the IASB, replacing the earlier term, IAS (international accounting
standards). International accounting standards that the IASB issued prior to this change in
terminology continue to use the prefix IAS. For further information on the principal differences
between IFRS and U.S. GAAP, see Note 18 of our financial statements appearing elsewhere in this
annual report. Because we have ceased to qualify as a foreign private issuer for purposes of our
SEC reporting obligations, we will begin filing quarterly reports on Form 10-Q (beginning with
respect to our second fiscal quarter of 2005) and annual reports on Form 10-K (beginning with
respect to our fiscal year 2005) containing financial statements prepared in accordance with U.S.
GAAP. Each of the differences between IFRS and U.S. GAAP affects both net income and stockholders
equity. Our net income under U.S. GAAP was $136.7 million and $34.2 million for the years ended
December 31, 2002 and 2003, respectively. Our net loss under U.S. GAAP was $8.1 million for the
year ended December 31, 2004. We performed an analysis under the guidance of FAS 52 and IAS No. 29 to determine whether the
U.S. Dollar or the Mexican Peso should be used by TFM as its functional currency for IAS and U.S.
GAAP purposes. Based on the results of this analysis, we concluded that the U.S. Dollar is the
appropriate functional currency for IFRS, U.S. GAAP and SEC reporting purposes. We update the
results of this analysis on an ongoing basis. If we were required to change our functional currency
to Pesos, our results of operations historically reported in IFRS and for U.S. GAAP and SEC
reporting purposes may be substantially different. Critical Accounting Policies Set forth below is a description of certain key accounting policies on which our financial
condition and results of operations are based. These key accounting policies most often involve
complex matters or are -46-




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based on subjective judgments or decisions. In the opinion of our management, our most
critical accounting policies under both IFRS and U.S. GAAP are those related to revenue
recognition, financial statement translations into U.S. dollars and deferred income taxes. For a
full description of all of our accounting policies, see Note 2 to our financial statements
appearing elsewhere in this annual report. Revenue Recognition. Railroad transportation revenues for the relevant accounting period are
recognized as income based on the shipments originated and the corresponding destinations actually
reached during that period. This requires our management, at the cut-off date for each accounting
period, to estimate the progress of shipments during that period. If our assumptions are not
correct, we would have to recognize a maximum decrease in revenues of $0.8 million. Financial Statement Translations into U.S. Dollars. In preparing our financial statements, we
translate non-U.S. currency amounts to U.S. Dollars following the guidelines of FAS 52, IAS 29 and
related authoritative guidance. In doing so, we have determined that the U.S. Dollar is our
functional currency and, therefore, we follow the historical method of our translation, and
resulting translation gains or losses are reflected in earnings. The determination of the
functional currency is dependent upon managements judgment and involves consideration of all
relevant economic facts and circumstances affecting us. We evaluate the functional currency for
each fiscal period. Our most subjective key functional currency indicators are indebtedness, cash
flows and transportation revenues. Changes in our business in the future may impact the
determination for subsequent periods. In the event that our functional currency is no longer deemed
to be the U.S. Dollar, our results of operations and total assets and stockholders equity in
future periods could be negatively impacted. Derivatives fair value  embedded derivative feature on our long-term zero-coupon note
receivable from stockholder. Derivative financial instruments, including the embedded derivative
in the long-term zero-coupon note receivable from stockholder, are recorded at fair value. Gains
and losses for these derivatives are reflected in earnings. Fair value is based on relevant
factors, including price quotations for similar instruments traded in different markets. The fair
value of our embedded derivative feature on our long-term zero-coupon note receivable from
stockholder is derived from pricing models that consider the payment of future dividends, our
expected cash flows, as well as time value and yield curve or volatility factors underlying the
positions. Pricing models and their underlying assumptions impact the amount and timing of unrealized
gains and losses recognized, and the use of different pricing models or assumptions could produce
different financial results. To the extent financial contracts have extended maturity dates, our
estimates of fair value may involve greater subjectivity due to the low level of available
transparent market data upon which to base modeling assumptions. Deferred income taxes. We apply the provisions of IAS 12, Income Taxes, and FAS 109,
Accounting for Income Taxes, which are both full liability methods. Since commencement of our
operations, although we have generated book profits, we have incurred tax losses due primarily to
the accelerated tax amortization of our concession rights. We have recognized a deferred income tax
asset for the resulting net operating loss carryforwards and may continue to recognize additional
amounts in the next few years. Our management anticipates that such net operating loss
carryforwards will be realized given the long carryforward period (through the year 2046) for
amortization of the concession, as well as the fact that we expect to generate taxable income in
the future. Our tax projections take into consideration certain assumptions, some of which are
under our control and others which are not. Key assumptions include inflation rates, currency
fluctuations and future revenue growth. If our assumptions are not correct, we would have to
recognize a valuation allowance on our deferred tax asset. -47-




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New Accounting Pronouncements IFRS In December 2003, as a result of the IASBs improvement project, the IASB issued the revised
version of fifteen standards. The revised IASs are: IAS 1
    
    Presentation of Financial StatementsIAS 2
    
    InventoriesIAS 8
    
    Accounting Policies, Changes in Accounting Estimates and ErrorsIAS 10
    
    Events after the Balance SheetIAS 16
    
    Property, Plant and EquipmentIAS 17
    
    LeasesIAS 21
    
    The Effects of Changes in Foreign Exchange RatesIAS 24
    
    Related Party DisclosuresIAS 27
    
    Consolidated and Separate Financial StatementsIAS 28
    
    Investments in AssociatesIAS 31
    
    Interests in Joint VenturesIAS 32
    
    Financial Instruments: Disclosure and PresentationIAS 33
    
    Earnings per ShareIAS 39
    
    Financial Instruments: Recognition and MeasurementIAS 40
    
    Investment Property
 In February 2004, the IASB published IFRS 2, Share-based Payments. The above standards are
effective for accounting periods commencing on January 1, 2005, with earlier application
encouraged. In March 2004, the IASB issued IFRS 3, Business Combinations; Amendments to IAS 36 Impairment
of Assets; Amendments to IAS 38 Intangible Assets and IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. With the exception of IFRS 3, the revised and new standards are effective
for accounting periods commencing on or after January 1, 2005. IFRS 3 applies to the accounting for
business combinations for which the agreement date is on or after March 31, 2004. There were no
business combinations in 2004. We have not early adopted any of the revised and new standards in
preparing our consolidated financial information. The adoption of these new standards is not
expected to have an impact on our current financial condition or results of operations. U.S. GAAP In January 2003, the FASB issued FIN 46 Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 or FIN 46. FIN 46 provides a new framework for identifying variable
interest entities, or VIEs, and determining when a company should include the assets, liabilities,
non-controlling interests and results of activities of a VIE in its consolidated financial
statements. FIN 46 is effective immediately for VIEs created after January 31, 2003 and is
effective beginning in the third quarter of 2003 for VIEs created prior to issuance of the
interpretation. In December 2003, the FASB issued a revision to Interpretation No. 46, Consolidation of
Variable Interest Entities, or Interpretation 46R. Interpretation 46R provides additional
guidance. The adoption of Interpretation No. 46 did not have a material impact on our consolidated
financial position, results of operations or cash flows. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, or SFAS 151. SFAS 151
amends ARB No. 43, Inventory Pricing, or ARB 43, to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material. ARB 43 previously stated
that these costs must -48-




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be so abnormal as to require treatment as current period charges. SFAS 151 requires that those
items be recognized as current-period charges regardless of whether they meet the criterion of so
abnormal. In addition, this statement requires that allocation of fixed production overhead to the
costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is
effective for inventory costs incurred during fiscal years beginning after June 15, 2005, with
earlier application permitted for fiscal years beginning after the issue date of SFAS 151. The
adoption of SFAS 151 is not expected to have any impact on our current financial condition or
results of operations. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, or SFAS
153, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions, or APB Opinion
29. APB Opinion 29 is based on the opinion that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. SFAS 153 amends APB Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it with an exception
for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning
after June 15, 2005. The adoption of SFAS 153 is not expected to have any impact on our current
financial condition or results of operations. In December 2004, the FASB revised SFAS No. 123 (SFAS No. 123R), Accounting for Stock Based
Compensation, or SFAS 123R. The revision established standards for the accounting of transactions
in which an entity exchanges its equity instruments for goods or services, particularly
transactions in which an entity obtains employee services in share-based payment transactions. SFAS
123R requires a public entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award. That cost is to be
recognized over the period during which the employee is required to provide service in exchange for
the award. Changes in fair value during the requisite service period are to be recognized as
compensation cost over that period. In addition, the revised statement amends SFAS No. 95,
Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash flow
rather than as a reduction of taxes paid. The provisions of SFAS 123R are effective for financial
statements issued for the first interim or annual reporting period beginning after June 15, 2005,
with early adoption encouraged. The adoption of SFAS 123R is not expected to have a material impact
on our consolidated financial statements. In June 2005, the FASB published SFAS No. 154, Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3, or SFAS 154, which changes the
requirements for the accounting for and reporting of a change in accounting principle and redefines
restatement as the revising of previously issued financial statements to reflect the correction of
an error. SFAS 154 requires retrospective application to prior periods financial statements of
changes in accounting principle, unless it is impracticable to determine the period-specific
effects of the cumulative efect of the change. This Statement also carries forward without change
the guidance contained in Opinion 20 for reporting the correction of an error in previously issued
financial statements and a change in accounting estimate. This Statement does not change the
transition provisions of any existing accounting pronouncement. SFAS 154 will be effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15,
2005. TFM is evaluating the impact that this statement may have on its financial position or
results of operations. In March 2004, the Emerging Issues Task Force, or EITF, ratified EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments, or EITF
03-1. EITF 03-1 provides a three-step process for determining whether investments, including debt
securities, are other than temporarily impaired and requires additional disclosures in annual
financial statements. The recognition and measurement guidance in EITF 03-1 should be applied to
other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. We
do not expect the adoption of EITF 03-1 -49-




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to have a material impact on our financial position or results of operations because we do not
hold any applicable investments. In June 2004, the FASB issued EITF Issue No. 02-14, Whether an Investor Should Apply the
Equity Method of Accounting to Investments Other Than Common Stock, or EITF 02-14. EITF 02-14
addresses whether the equity method of accounting applies when an investor does not have an
investment in voting common stock of an issuer but exercises significant influence through other
means. EITF 02-14 states that an investor should only apply the equity method of accounting when it
has investments in either common stock or in-substance common stock of a corporation, provided that
the investor has the ability to exercise significant influence over the operating and financial
policies of the issuer. The accounting provisions of EITF 02-14 are effective for reporting periods
beginning after September 15, 2004. We do not expect the adoption of EITF 02-14 to have a material
impact on our consolidated financial position, results of operations or cash flows. In November 2004, the EITF reached a final conclusion on EITF Issue 04-8, Accounting Issues
Related to Certain Features of Contingently Convertible Debt and the Effect of Diluted Earnings per
Share, or EITF 04-8. EITF 04-8 addresses when the dilutive effect of contingently convertible debt
with a market price trigger should be included in diluted earnings per share calculations. The
EITFs conclusion is that the market price trigger should be ignored and that these securities
should be treated as convertible securities and included in diluted earnings per share regardless
of whether the conversion contingencies have been met. EITF 04-8 is effective for periods ending
after December 15, 2004 and would be applied retrospectively restating previously reported diluted
earnings per share. The adoption of EITF 04-8 did not have a material impact on our consolidated
financial position, results of operations or cash flows. U.S. GAAP Differences Applicable to Us General Historically, we have prepared our financial statements in accordance with IFRS. The more
significant differences between IFRS and U.S. GAAP relate to the long-term notes receivable from
stockholder, the recognition of deferred income tax, deferred employees statutory profit sharing,
and the effect on purchase of subsidiary shares. For more detail on differences in accounting
treatment between IFRS and U.S. GAAP through December 31, 2004,
see Note 18 to our financial
statements. Because we have ceased to qualify as a foreign private issuer for purposes of our SEC
reporting obligations, we will begin filing quarterly reports on Form 10-Q (beginning with respect
to our second fiscal quarter of 2005) and annual reports on Form 10-K (beginning with respect to
our fiscal year 2005) containing financial statements prepared in accordance with U.S. GAAP. Long-term receivables from stockholder As
more fully described in Note 11 to our financial
statements, we have two long-term non-interest bearing receivables due
from Grupo TFM. One is a non-interest bearing demand receivable while the other, which is related
to our Association in Participation Agreement, is treated under IFRS as a zero-coupon note
receivable with an embedded feature linked to the value of our shares. Under U.S. GAAP,
non-interest bearing receivables from stockholders are carried at their face value and embedded
derivatives are not recorded. Based on the nature and terms of these receivables and following
discussions with our independent public accountants on April 16, 2005, we determined, solely for
purposes of our U.S. GAAP reconciliation, to revise Note 18 to our financial statements to
reclassify these receivables as a reduction of stockholders equity and not as an asset as
previously reported. As a result, stockholders equity under U.S. GAAP as of December 31, 2003 and
2004 reflects a reduction in the amount of $661.1 million for each period. There is no similar
presentation -50-




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requirement under IFRS. The reclassification had no impact on our statements of income or cash
flows for the three years ended December 31, 2004. Deferred income tax and employees statutory profit sharing The deferred income tax included in the consolidated financial statements was calculated in
accordance with IAS-12 (revised) which requires the recording of deferred taxes for fixed assets
and the concession, including the effects of indexing for tax purposes. U.S. GAAP prohibits recognition of deferred tax assets or liabilities for differences related
to assets and liabilities that are remeasured from the local currency into the functional currency
using historical exchange rates and that result from changes in exchange rates or indexation for
tax purposes. As a Mexican company, we are subject to employee profit sharing liabilities and we calculate
such profit sharing liabilities as 10% of our net taxable income. In calculating our net taxable
income for profit sharing purposes, we deduct net operating loss, or NOL, carryforwards. The
application of NOL carryforwards can result in a deferred profit sharing asset for a given period
instead of a profit sharing liability. The Mexican tax authorities had challenged our calculation
of profit sharing liabilities in the late 1990s, but we prevailed with a Mexican Fiscal Court
ruling in 1999 followed by a Tax Authority Release acknowledging our ability to continue to
calculate profit sharing the way we had been, including the deduction of NOL carryforwards in the
calculation of net taxable income for profit sharing purposes. However, since a technical
amendment to the Mexican tax law in 2002, the Mexican tax authorities have objected to our
deduction of NOL carryforwards in the calculation of net taxable income for profit sharing purposes
following such amendment, which objection we have challenged in court. The differences in the net deferred income tax and employees statutory profit sharing assets
determined under U.S. GAAP and IFRS at December 31, 2003 and 2004 are summarized below: Deferred income tax
    
    
    Deferred profitassets
    
    
    sharing assets2003
    
    
    2004
    
    
    2003
    
    
    2004(in thousands of Dollars)Amounts recorded under IFRS
    
    $
    73,833
    
    
    $
    95,942
    
    
    $
    
    
    
    $
    Amount determined under U.S. GAAP
    
    
    191,886
    
    
    
    193,734
    
    
    
    50,061
    
    
    
    56,617Net difference
    
    $
    (118,053
    )
    
    $
    (97,792
    )
    
    $
    (50,061
    )
    
    $
    (56,617
    )
 On May 3, 2005, the Mexican Supreme Court ruled in a plenary session relating to four cases
that NOL carryforwards could not be deducted when calculating net taxable income for profit sharing
liability purposes. None of the four cases involved Grupo TFM or TFM.
Because these rulings took place subsequent to the issuance of our
2004 accounts, the decisions do
not give rise to a restatement of any amounts recorded as of December 31, 2004 as set forth in our
financial statements included in this annual report. In light of these decisions, our management
is currently assessing the potential impact of these rulings on our accounting practices relating
to the application of NOL carryforwards for our 2005 U.S. GAAP accounting. In the event that we
had not been able to deduct NOL carryforwards from our profit sharing
liabilities in respect of our
financial statements through December 31, 2004 for U.S. GAAP
reconciliation purposes, such financial statements would have been
negatively affected by the elimination of a cumulative amount of U.S.$72.0 million in NOL
carryforwards as of December 31, 2004. There would have been no effect on our financial
statements under IFRS, which does not require the establishment of assets or liabilities relating
to these carryforwards. Under U.S. GAAP, employees profit sharing would be considered an operating expense. Purchase of subsidiary shares As more fully described in our financial statements, on March 27, 2002, Grupo TMM and KCS sold
their respective interests in Mexrail to TFM. Under U.S. GAAP, TFM has recorded the transaction
pursuant to SFAS No. 141 Business Combinations with partial fair value step-up (49%) being
recognized for the assets and liabilities being acquired for the portion deemed purchased from KCS.
Thus the excess amount was recorded as an increase in fixed assets with a corresponding deferred
income tax liability. The portion -51-




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sold by Grupo TMM to TFM (51%) was accounted for on a historical carryover basis since both
Mexrail and TFM were under the common control of Grupo TMM (the accounting would not differ from
that under IFRS as recorded). In addition, Grupo TMM and TFM entered into a new stock purchase agreement dated August 16,
2004, or the New Mexrail Stock Purchase Agreement. Pursuant to the terms of that agreement, KCS
purchased from TFM 51% of the outstanding shares of Mexrail for $32.7 million. KCS has an option
which, if not exercised on or before October 31, 2005, becomes an obligation on October 31, 2005 to
purchase the remaining shares of Mexrail owned by TFM at a fixed price of $31.4 million. Under IFRS, TFM recorded a net gain on the sale of the 51% of Mexrail to KCS, whereas under
U.S. GAAP, the sale of the initial 51% would have resulted in a net loss due to the higher carrying
value of the investment. In addition, given that the sale price for the remaining 49% is fixed and
determinable, for U.S. GAAP purposes, the carrying value of the remaining 49% was written down to
the expected proceeds of $31.4 million, for an additional U.S. GAAP loss. Under IFRS, the benefit
of the call option for the sale of the remaining 49% was recognized, but was not recognized for
U.S. GAAP purposes. As a result, we recognized an adjustment to our net income under U.S. GAAP
amounting to $19.6 million as shown below. At December 31, the net carrying value of Mexrail is as follows: 2003
    
    
    2004(in thousands ofDollars)IFRS
    
    $
    14,565
    
    
    $
    31,398U.S. GAAP
    
    
    34,141
    
    
    
    31,398Net difference
    
    $
    19,576
    
    
    
    
 Under IFRS, the remaining 49% interest in Mexrail was classified as a receivable including the
value of the call option, whereas as under U.S. GAAP, the investment would be classified as an
investment recorded at cost. Summary As a result of the above and other differences, our net income and shareholders equity under
IFRS and U.S. GAAP for the periods indicated were as follows: Net Income (Loss)IFRS
    
    
    U.S. GAAP(in thousands ofDollars)2004
    
    $
    25,346
    
    
    $
    (8,102
    )2003
    
    
    (61,044
    )
    
    
    34,1612002
    
    
    (11,350
    )
    
    
    136,655
 Shareholders EquityIFRS
    
    
    U.S. GAAP(in thousands ofDollars)December 31, 2004
    
    $
    1,612,818
    
    
    $
    1,105,651December 31, 2003 (as restated)
    
    
    1,587,472
    
    
    
    1,113,759
 -52-




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Results of Operations The following discussion of our results of operations is based on the financial information
derived from our financial statements prepared in accordance with IFRS. References to increases or
decreases in any year are made by comparison with the corresponding prior year, except as the
context otherwise indicates.  TFMs Results of Operations for the Year Ended December 31, 2004 Compared to the Year Ended
December 31, 2003 The following comparison includes the consolidation in 2004 of only seven months of financial
results of Mexrail as a result of our sale of a 51% interest in Mexrail to KCS. Revenues Revenues for the year ended December 31, 2004 totaled $699.2 million compared to $698.5
million for the year ended December 31, 2003, which represented an increase of $0.7 million or
0.1%. These results include the consolidation of only seven months of financial results of Mexrail
as a consequence of the sale of 51% of Mexrail to KCS in August 2004. Without taking into account
any consolidation of Mexrail, our revenues for the year ended December 31, 2004 totaled $664.2
million compared to $641.4 million for the year ended December 31, 2003, which represents an
increase of $22.8 million or 3.6% over 2003. The increase in 2004 was mainly attributable to the
general recovery of the Mexican and U.S. economies. Carloads are a standard measure used by TFM to
determine the volume of traffic transported over our rail lines. Excluding carloads from Mexrails
wholly-owned subsidiary, Tex-Mex, TFMs carloads in 2004 increased by 7.4% compared to 2003, while
the Mexican economy grew by 4.4%. Additionally, the depreciation of the Peso against the Dollar
negatively impacted our revenues by $15.9 million. Imports into Mexico from the U.S., Canada and
overseas represented approximately 54.1%, 54.5%, and 54.8% of our total revenues in 2002, 2003, and
2004, respectively. Approximately 79% of our total revenues in 2004 were attributable to
international freight. The following table sets forth, by product category, our revenues and traffic volumes by
carloads for the years ended December 31, 2003 and December 31, 2004, respectively. Year Ended December 31,2003
    
    
    2004(1)Product Category
    
    Carloads
    
    
    Revenues
    
    
    Carloads
    
    
    Revenues(in millions)
    
    
    
    
    
    
    (in millions)Agro-industrial products
    
    
    122,114
    
    
    $
    142.9
    
    
    
    125,688
    
    
    $
    143.4Cement, metals and minerals
    
    
    159,502
    
    
    
    125.4
    
    
    
    173,198
    
    
    
    138.2Chemical and petrochemical products
    
    
    88,522
    
    
    
    113.2
    
    
    
    101,291
    
    
    
    125.7Automotive products
    
    
    120,883
    
    
    
    124.7
    
    
    
    119,104
    
    
    
    119.8Manufactured products, industrial products
    
    
    87,117
    
    
    
    74.3
    
    
    
    97,741
    
    
    
    79.3Intermodal freight
    
    
    190,488
    
    
    
    52.4
    
    
    
    208,452
    
    
    
    50.5Other(2)
    
    
    0
    
    
    
    8.5
    
    
    
    0
    
    
    
    7.3TFM
    
    
    768,626
    
    
    $
    641.4
    
    
    
    825,474
    
    
    $
    664.2Tex-Mex
    
    
    100,814
    
    
    
    57.1
    
    
    
    60,176
    
    
    
    35.0Total
    
    
    869,440
    
    
    $
    698.5
    
    
    
    885,650
    
    
    $
    699.2
 
 (1)
    
    Includes only seven months of Tex-Mexs 2004 revenues as a consequence of the sale of its
parent, Mexrail, to KCS in August 2004.(2)
    
    Other revenues include railroad services such as haulage, demurrages, switching, etc. Agro-industrial products. Revenues increased by $0.5 million in 2004 compared to 2003.
The U.S. and Canada are the dominant suppliers of agricultural products to Mexico, and a
significant amount of the -53-




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agro-industrial products carried over our rail lines are imports, consisting primarily of
grains and grain products (principally corn and wheat). In 2004, we maintained our share of almost
half of the total grains imported from the U.S. and Canada. Additionally, we were able to convert
additional amounts of truck transport to rail from the port of Lázaro Cárdenas to the Nuevo
Laredo-Laredo crossing. Cements, metals and minerals. Revenues increased by $12.8 million or 10.2% in 2004 compared
to 2003, due to a gain in market share in the exports of paper and home appliance products. Also,
our revenues were favorably impacted by the conversion of truck transport to rail and the recapture
of lost customers. Chemical and petrochemical products. Revenues increased by $12.5 million or 11.0% in 2004
compared to 2003. The increase was the result of increases in transportation of fuel oil, diesel
and gasoline for PEMEX and imported plastics. Additionally, we continued to convert truck transport
to rail through the use of our transload facilities, at which trucks and trains can exchange cargo. Automotive products. Revenues decreased by $4.9 million or 3.9% in 2004 compared to 2003.
During 2004, vehicle production in Mexico decreased 2.2% due to reduced demand. This decrease was a
result of the continued economic recession in the automotive industry in Mexico and the U.S.
Through efforts to convert truck transport to rail, we have mitigated this reduction in our
revenues, but overall our hauls have decreased because of volume lost from the closure of and
reduction at certain automotive plants. Manufactured products, industrial products. Revenues increased by $5.0 million or 6.7% in
2004 compared to 2003. We capitalized on the recovery of the steel industry with increasing long
haul traffic of slabs, billets, bars and wire rod from the Port of Lázaro Cárdenas to Monterrey.
Additionally, this business unit benefited from the performance of the construction industry. Intermodal freight. Revenues decreased by $1.9 million or 3.6% in 2004 compared to 2003, due
to the decline in the transport of automotive products and as a consequence of the recession in the
U.S. automotive industry. However, through our efforts to convert truck transport to rail, we were
able to reduce the impact of the slowdown in the automotive industry. Operating Expenses Total operating expenses amounted to $572.2 million for the year ended December 31, 2004,
compared to $565.4 million for the year ended December 31, 2003, which represents an increase of
1.2%. The following table illustrates our operating expenses for the periods indicated as a
percentage of revenues generated during the corresponding periods. Year Ended December 31,2003
    
    
    2004% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue(in thousands)
    
    
    
    
    
    
    (in thousands)Salaries, wages and employee benefits
    
    $
    105,569
    
    
    
    15.1
    %
    
    $
    107,526
    
    
    
    15.4
    %Purchased services
    
    
    130,565
    
    
    
    18.7
    
    
    
    139,336
    
    
    
    19.9Fuel
    
    
    58,706
    
    
    
    8.4
    
    
    
    79,287
    
    
    
    11.3Materials and supplies
    
    
    7,391
    
    
    
    1.1
    
    
    
    5,967
    
    
    
    0.9Car hirenet
    
    
    35,420
    
    
    
    5.1
    
    
    
    37,913
    
    
    
    5.4Rents other than car hire
    
    
    56,372
    
    
    
    8.1
    
    
    
    54,046
    
    
    
    7.7Casualties and insurance
    
    
    11,655
    
    
    
    1.6
    
    
    
    11,530
    
    
    
    1.7Other costs
    
    
    12,798
    
    
    
    1.8
    
    
    
    12,137
    
    
    
    1.7
 -54-




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Year Ended December 31,2003
    
    
    2004% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue(in thousands)
    
    
    
    
    
    
    (in thousands)Depreciation and amortization
    
    
    83,167
    
    
    
    11.9
    
    
    
    85,700
    
    
    
    12.3TFM
    
    $
    501,643
    
    
    
    71.8
    %
    
    $
    533,442
    
    
    
    76.3
    %Tex-Mex
    
    
    63,728
    
    
    
    9.1
    %
    
    
    38,763
    
    
    
    5.5
    %Total
    
    $
    565,371
    
    
    
    80.9
    %
    
    $
    572,205
    
    
    
    81.8
    %
 Salaries, wages and employee benefits. Salary, wages and benefit expenses increased 1.9% to
$107.5 million in 2004 compared to 2003. The increase was largely attributable to the annual wage
increase payable to our employees and increases in other employee benefits effective July 1, 2004.
Because our wages are payable in Pesos, this increase was partially offset by the depreciation in
2004 of the Peso against the Dollar. As of December 31, 2004, we had 3,399 full-time employees. Purchased services. Costs of purchased services increased by $8.8 million or 6.7% in 2004
over 2003. Costs of purchased services consisted primarily of expenses related to equipment
maintenance of locomotives and railcars, haulage, terminal services and security expenses. The
increase in purchased services was primarily attributable to an increase in terminal services and
maintenance to locomotives and rolling stock as a result of additional carload volume. Fuel. Our fuel expenses increased 35.1% in 2004 compared to 2003 primarily due to the
volatility of fuel prices during 2004. The average fuel price per gallon increased 30.1% in 2004
over 2003. Additionally, in 2004, our fuel consumption increased 5.2% compared to 2003. Materials and supplies. Costs of materials and supplies consumed in 2004 were $1.4 million
lower than 2003, primarily because of a decrease in track maintenance activities. Car hirenet. Our car hirenet expenses include costs incurred by us to use the railcars of
other railroads to move freight, net of car hire income we receive from other railroads for use of
our railcars to move freight. Our car hirenet expenses are affected by the volume of our business,
the number of cars we own or lease and traffic flows. Car hirenet expenses increased by 7.0% in
2004 compared to 2003. This increase is due to an increase of the time and mileage car hire expense
in the use of cars by $3.8 million, which was partially offset by the increase of car hire revenue
received from other railroads by $1.2 million. Rents other than car hire. Rents other than car hire include locomotive and railcar leases
and equipment rental expenses. These expenses decreased by $2.3 million or 4.1% in 2004 compared to
2003. The decrease was attributable to lower rates resulting from the negotiation of better rates
with our lessors and to an increase in our recovery of leasing costs through the sublease of cars
to other railroad companies. Casualties and insurance. These expenses did not vary materially in 2004 compared to 2003. Other costs. Other costs consist primarily of employee expenses such as the costs of meals,
lodging and travel, as well as the concession duty payable to the Mexican government and the
allowance for doubtful accounts. These expenses decreased in 2004 mainly due to a decrease of $0.7
million in connection with increased control over travel expenses. Depreciation and amortization. Depreciation and amortization expenses in 2004 increased by
$2.5 million compared to 2003 primarily as a result of additional capital improvements to our
lines, new operating capacity, intermodal terminals and ongoing investments. Income on Transportation and Operating Ratio Operating ratio is an industry efficiency measure which represents a railroads operating
expenses as a percentage of its transportation revenues. Our income on transportation decreased by
$6.1 million in 2004 -55-




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compared to $133.2 million in 2003, representing a decrease of approximately 4.6%, due to the
factors described above. Our operating ratio increased to 81.8% for 2004 from 80.9% for 2003. Other Expenses Other (income) expensenet. Our other expensesnet decreased by $29.4 million in 2004
compared to 2003 due to a one-time charge incurred in 2003 in connection with our VAT refund claim
and the gain resulting from the sale of the Mexrail shares of $7.4 million. Interest expensenet. Interest expensenet for 2004 was $111.5 million compared to $111.1
million for 2003. Exchange gain (loss)net. We recorded net foreign exchange income of $0.4 million for 2004
compared to a net foreign exchange loss of $13.7 million for 2003. We have exposure to fluctuations
in the value of the Peso relative to the Dollar because our Peso accounts receivable are greater
than our Peso accounts payable. In 2004, the Dollar depreciated 0.8% and in 2003 the Dollar
appreciated 7.4%, relative to the Peso. Net income tax (benefit) expense.Our net income tax benefit was $15.3 million for 2004
compared to a net income tax expense of $34.1 million for 2003. The $49.4 million decrease in the
income tax expense was mainly due to the effects of inflation on depreciation and amortization of
$49.4 million, as well as the effects of inflation on tax loss carryforward of $14.5 million. This
decrease in the income tax expense was partially offset by the increase in the permanent
differences related to inflationary components and non-deductible expenses amounting to $1.8
million, together with the effect of the change in the income tax rate from 33% to 28% and other
effects amounting to $0.3 million. Results
of Operations of Grupo TFM for the Year Ended December 31, 2004
Compared to the Year Ended December 31, 2003 Grupo TFM is a non-operating holding company with no material assets or operations other than
its investment in TFM. Consequently, the explanations of our results of operations apply in all
material respects to Grupo TFMs consolidated results of operations for the same period. Following
is a description of the additional items unique to Grupo TFM. The minority interest decreased to an income of $5.1 million in 2004 from a loss of $12.2
million in 2003. This decrease was driven by: (i) a one-time expense in connection with the VAT
claim in 2003, and (ii) a decrease in deferred income tax expenses recorded in 2004 compared to
2003 as a result of the appreciation of the Peso against the Dollar in our fixed assets. The
minority interest component of the consolidated statement of results of operations reflects the
20.0% share of TFM held by the Mexican government. The minority interest increased to a loss of
$12.2 million in 2003 from a loss of $2.3 million in 2002. This increase was driven by one-time
expenses in connection with the VAT lawsuit in 2003 and an increase in deferred income tax expenses
recorded in 2003 compared to 2002 as a result of the depreciation of the Peso against the Dollar in
our fixed assets and the reduction of working capital provisions. See
Item 3. Key Information  Risk Factors  Governmental policies and economic developments in Mexico and
elsewhere may adversely affect our financial condition. for a discussion regarding the impact of
inflation, foreign currency fluctuations and Mexican governmental policies on our business. -56-




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TFMs Results of Operations for the Year Ended December 31, 2003 Compared to the Year Ended
December 31, 2002 Revenues Revenues for the year ended December 31, 2003 totaled $641.4 million compared to $660.5
million for the year ended December 31, 2002, which represented a decrease of 2.9%. This minor
decrease in 2003 was mainly attributable to the general slowdown of the U.S. and Mexican economies,
particularly in the automotive industry. TFMs carloads (excluding Tex-Mexs carloads) in 2003
increased by 3.3% compared to 2002, while the Mexican economy grew by only 1.3% and foreign trade
with the U.S. grew by only 1.5% (excluding petroleum). Additionally, the depreciation of the Peso
against the Dollar negatively impacted our revenues by $37.3 million. The following table sets forth, by product category, our revenues and traffic volumes by
carloads for the years ended December 31, 2002 and December 31, 2003, respectively. Year Ended December 31,2002
    
    
    2003Product Category
    
    Carloads
    
    
    Revenues
    
    
    Carloads
    
    
    Revenues(in millions)
    
    
    
    
    
    
    (in millions)Agro-industrial products
    
    
    110,956
    
    
    $
    140.8
    
    
    
    122,114
    
    
    $
    142.9Cement, metals and minerals
    
    
    144,718
    
    
    
    114.8
    
    
    
    159,502
    
    
    
    125.4Chemical and petrochemical products
    
    
    83,406
    
    
    
    107.7
    
    
    
    88,522
    
    
    
    113.2Automotive products
    
    
    131,926
    
    
    
    154.1
    
    
    
    120,883
    
    
    
    124.7Manufactured products, industrial products
    
    
    82,349
    
    
    
    80.8
    
    
    
    87,117
    
    
    
    74.3Intermodal freight
    
    
    190,694
    
    
    
    56.3
    
    
    
    190,488
    
    
    
    52.4Other(1)
    
    
    0
    
    
    
    6.0
    
    
    
    0
    
    
    
    8.5TFM
    
    
    744,049
    
    
    $
    660.5
    
    
    
    768,626
    
    
    $
    641.4Tex-Mex
    
    
    91,550
    
    
    
    51.6
    
    
    
    100,814
    
    
    
    57.1Total
    
    
    835,599
    
    
    $
    712.1
    
    
    
    869,440
    
    
    $
    698.5
 
 (1)
    
    Other revenues include railroad services such as
haulage, demurrages, switching, etc. Agro-industrial products.Revenues increased by $2.1 million or 1.5% in 2003 compared to
2002. The U.S. and Canada are the dominant suppliers of agricultural products to Mexico, and a
significant amount of the agro-industrial products carried over our rail lines are imports,
consisting primarily of grains and grain products (principally corn and seeds) imported to Mexico
from the U.S. and Canada. In 2003, we increased our market share of grains to almost half of the
total grains imported to Mexico from the U.S. and Canada. Additionally, we were able to convert
truck transport from the port of Lázaro Cárdenas to the Nuevo Laredo-Laredo crossing. Cements, metals and minerals.Revenues increased by $10.6 million or 9.2% in 2003 compared to
2002. We capitalized on Mexicos exemption from tariffs on steel imports that the U.S. imposed on
non-NAFTA countries, as well as the recovery of long hauls from the port of Lázaro Cárdenas to
Monterrey of slabs, billets, bars and wire rod. We also gained market share from cabotage
shipping (shipping within Mexico and Mexican waters). -57-




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Chemical and petrochemical products.Revenues increased by $5.5 million or 5.1% in 2003
compared to 2002. Contributing to the increase in revenues were increases in petroleum coke traffic
for CEMEX, transportation of fuel oil, diesel and gasoline for PEMEX and imported plastics traffic.
Additionally, we continued the successful conversion from truck transport to rail through the use
of transload facilities, at which trucks and trains can exchange cargo. Automotive products.Revenues decreased by $29.4 million or 19.1% in 2003 compared to 2002.
During 2003, vehicle production in Mexico decreased 15% due to reduced demand. This decrease was a
result of the continued economic recession in Mexico and the U.S. Additionally, we were still
experiencing the adverse effect of the shutdown of the DaimlerChrysler plant in Lago Alberto and
the reduction of Ford exports from its Cuautitlán plant in 2002. Through efforts to convert truck
transport to rail, we have mitigated this reduction in our revenues, but our hauls have decreased
because of volume lost from the closure of and reduction at these plants. Manufactured products, industrial products.Revenues decreased by $6.5 million or 8.0% in
2003 compared with 2002. This decrease was mainly attributable to a continued slowdown in paper and
wood product imports. Intermodal freight.Revenues decreased by $3.9 million or 6.9% in 2003 compared to 2002.
Although we have been able to reduce our dependence on the automotive industry, 65% of this product
category is related to automotive traffic. However, through our efforts to convert truck traffic to
rail, we were able to reduce the impact of the slowdown in the automotive industry. The Texas-Mexican Railway Company (Tex-Mex).Tex-Mexs revenues increased by $5.5 million or
10.7% in 2003 compared to 2002. Tex-Mexs total revenues were $57.1 million in 2003. This increase
was mainly a result of an increase in traffic passing between the U.S. and Mexico, primarily fueled
by an increase in traffic from the agro-industrial, chemical and industrial product segments. Operating Expenses Total operating expenses amounted to $565.4 million for 2003 compared to $557.7 million for
2002, which represents an increase of 1.4%. The following table illustrates our operating expenses
for the periods indicated as a percentage of revenues generated during the corresponding periods. Year Ended December 31,2002
    
    
    2003% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue(in thousands)
    
    
    
    
    
    
    (in thousands)Salaries, wages and employee benefits
    
    $
    124,413
    
    
    
    17.5
    %
    
    $
    121,762
    
    
    
    17.4
    %Purchased services
    
    
    163,835
    
    
    
    23.0
    
    
    
    155,594
    
    
    
    22.3Fuel
    
    
    50,139
    
    
    
    7.0
    
    
    
    63,972
    
    
    
    9.2Materials and supplies
    
    
    8,455
    
    
    
    1.2
    
    
    
    7,871
    
    
    
    1.1Car hirenet
    
    
    43,070
    
    
    
    6.0
    
    
    
    42,378
    
    
    
    6.1Rents other than car hire
    
    
    56,563
    
    
    
    7.9
    
    
    
    57,580
    
    
    
    8.2Casualties and insurance
    
    
    14,853
    
    
    
    2.1
    
    
    
    15,458
    
    
    
    2.2Other costs
    
    
    14,942
    
    
    
    2.1
    
    
    
    15,353
    
    
    
    2.2Depreciation and amortization
    
    
    81,401
    
    
    
    11.4
    
    
    
    85,403
    
    
    
    12.2Total operating expenses
    
    $
    557,671
    
    
    
    78.3
    %
    
    $
    565,371
    
    
    
    80.9
    %
 Salaries,
wages and employee benefits.Salary, wages and employee benefits expenses decreased 2.1% to $121.8 million in
2003 compared to 2002. The decrease was largely attributable to the reduction in our average number
of full-time -58-




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employees by 2.2% to 3,392 in 2003 from 3,469 in 2002 and the depreciation of the Peso against
the Dollar. This decrease in employees was partially offset by the annual wage increase payable to
our union employees and an increase in other employee benefits that was effective July 1, 2003. Purchased services.Costs of purchased services decreased by $8.2 million or 5.0% in 2003
over 2002. Costs of purchased services consisted primarily of expenses related to equipment
maintenance of locomotives and railcars, haulage, terminal services and security expenses. The
decrease in the costs of purchased services was attributable to reduced expenses related to
maintenance of locomotives and railcars as a result of cost control measures and more efficient
operations. This decrease was partially offset by increased costs of maintenance of our
Celaya-Lázaro Cárdenasline and advertising expenses. Fuel.Our fuel expenses increased 27.6% in 2003 compared to 2002 primarily due to the
volatility of fuel prices during 2003. The average fuel price per gallon increased by 24.2% in 2003
over 2002. Additionally, in 2003, our fuel consumption increased 3.4% compared to 2002. Materials and supplies.Costs of materials and supplies consumed in 2003 were 6.9% lower than
for 2002, primarily because of a decrease in track maintenance activities. Car hirenet.Our car hirenet expenses include costs incurred by us to use the railcars of
other railroads to move freight, net of car hire income we receive from other railroads for use of
our railcars to move freight. Our car hirenet expenses are affected by the volume of our business,
the number of cars we own or lease and traffic flows. Car hirenet expenses decreased by 1.6% in
2003 compared to 2002. Our car hirenet expenses decreased primarily because of lower traffic
volume attributable to the slowdown in the automotive industry. Rents other than car hire.Rents other than car hire include locomotive and railcar leases
and equipment rental expenses. These expenses increased by $1.0 million or 1.8% in 2003 compared to
2002. The increase in the cost of rents other than car hire was attributable to the higher number
of railcars leased in 2003 compared to 2002. Casualties and insurance.These expenses increased 4.1% in 2003 compared to 2002 due to
higher premium rates. Other costs.Other costs consist primarily of employee expenses such as the costs of meals,
lodging and travel, as well as the concession duty payable to the Mexican government and the
allowance for doubtful accounts. These expenses increased in 2003 mainly due to an increase of $0.4
million in concession duty, which is calculated as 0.5% of gross revenues from our rail lines
during the first 15 years of the concession, increasing to 1.25% of gross revenues thereafter. Depreciation and amortization.Depreciation and amortization expenses in 2003 increased by
$4.0 million from 2002, primarily as a result of additional capital improvements to our lines, new
operating capacity, intermodal terminals and ongoing investments. Income on Transportation and Operating Ratio Our income on transportation decreased to $133.2 million in 2003 compared to $154.5 million in
2002, representing a decrease of approximately 13.8%, due to the factors described above. Our
operating ratio increased to 80.9% for 2003 compared to 78.3% for 2002. -59-




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Other Expenses Other(income) expensenet.Our other expensesnet increased by $15.0 million in 2003 compared
to 2002 due to a one-time charge incurred in 2003 in connection with the VAT lawsuit. This increase
was partially offset by the gain resulting from the sale by TFM to the Mexican government of the
redundant La Griega-Mariscalaline, which amounted to $2.4 million. Interest expensenet.Interest expensenet for 2003 was $111.1 million compared to $96.7
million in 2002. Our interest expensenet increased in 2003 over 2002 because 2003 included a full
year of interest expense on our 12.50% Senior Notes due 2012, or 2012 Senior Notes, issued in June
2002. Exchange lossnet.We recorded a net foreign exchange loss of $13.7 million in 2003 and a net
foreign exchange loss of $17.5 million in 2002. We have exposure to fluctuations in the value of
the Peso relative to the Dollar because our Peso accounts receivable are greater than our Peso
accounts payable. In 2003 and 2002, the Dollar appreciated 7.4% and 13.9%, respectively, relative
to the Peso. Net income tax expense.Our net income tax expenses were $34.1 million for 2003 compared to
$32.0 million for 2002. The $2.1 million decrease in the income tax expense was mainly due to the
effects of inflation on depreciation and amortization of $19.1 million as well as the effects of
inflation on the tax loss carryforward of $22.1 million. This decrease of $59.8 million in the
income tax expense was partially offset by the increase in the permanent differences related to
inflationary components, the change in the income tax rate from 34% to 32%, and other effects. Results
of Operations of Grupo TFM for the Year Ended December 31, 2003
Compared to the Year Ended December 31, 2002 The minority interest increased to a loss of $12.2 million in 2003 from a loss of $2.3 million
in 2002. This increase was driven by: (i) one-time expenses in connection with the VAT lawsuit in
2003, (ii) an increase in our interest expenses in 2003 (which included a full year of interest
expense on TFMs 2012 senior notes issued on June 13, 2002) compared to 2002 and (iii) an increase
in deferred income tax expenses recorded in 2003 compared to 2002 as a result of the depreciation
of the Peso against the Dollar in our fixed assets and the reduction of working capital provisions.
The minority interest component of the consolidated statement of results of operations reflects
the 20.0% share of TFM held by the Mexican government. The minority interest decreased to a loss
of $2.3 million in 2002 from a gain of $20.4 million in 2001. This decrease was driven by the
reduction in deferred income tax benefits recorded in 2002 compared to 2001. See Item 3. Key InformationRisk FactorsRisk Factors Relating to MexicoGovernmental
policies and economic developments in Mexico and elsewhere may adversely affect our financial
condition Currency fluctuations may adversely affect our financial condition and Inflation
and interest rates may adversely affect our financial condition, for a discussion regarding the
impact of Mexican governmental policies, inflation and foreign currency fluctuations on our
business. B.          LIQUIDITY AND CAPITAL RESOURCES Our business is capital intensive and requires ongoing substantial expenditures for, among
other things, improvements to roadway, structures and technology, acquisitions, leases and repair
of equipment and maintenance of our rail system. We have funded, and expect to continue to fund,
capital expenditures with funds from operating cash flows and vendor financing. The discussion
below of our cash flow includes the contribution from Mexrail through August 2004, when we sold a
51% interest in Mexrail and a related call option to KCS. Our principal sources of liquidity
consist of existing cash balances, cash flows from operations, vendor financing and debt
financing. -60-




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Cash Flows From Operating Activities We generated positive cash flows from operating activities of $85.7 million in 2004, $99.7
million in 2003 and $125.3 million in 2002. The decrease in cash flows in 2004 from 2003 resulted
from an increase in net income which was more than offset by a decrease in deferred taxes and
changes in current assets and liabilities. The decrease in cash flows in 2003 from 2002 resulted
from a decrease in net income, primarily from legal expenses associated with our VAT refund claim. The following table summarizes cash flows from operating activities for the periods indicated. Year Ended December 31,2002
    
    
    2003
    
    
    2004(In thousands)Net (loss) income for the period
    
    $
    (11,350
    )
    
    $
    (61,044
    )
    
    $
    25,346Depreciation and amortization
    
    
    81,401
    
    
    
    85,403
    
    
    
    87,225Amortization of discount on 2009 Debentures(1)
    
    
    23,158
    
    
    
    370
    
    
    
    47Deferred income tax expense (benefit)
    
    
    32,033
    
    
    
    34,107
    
    
    
    (15,279
    )Minority interest
    
    
    (84
    )
    
    
    (383
    )
    
    
    (469
    )Loss on sale of property, machinery and equipmentnet
    
    
    6,897
    
    
    
    2,909
    
    
    
    3,704Gain on sale of 51% of Mexrail and related call option
    
    
    
    
    
    
    
    
    
    
    7,355Changes in current assets and liabilities
    
    
    (6,805
    )
    
    
    38,302
    
    
    
    (22,236
    )Net operating cash flows
    
    $
    125,250
    
    
    $
    99,664
    
    
    $
    85,693
 
 (1)
    
    Includes amortization of discount on senior discount debentures and commercial paper. Cash Flows from Investing Activities Net cash used in investing activities was $13.6 million in 2004. On August 16, 2004, we sold
shares representing 51.0% of Mexrail to KCS for approximately $32.7 million. This amount was
reduced by the income tax and legal expenses. Net cash used in investing activities was $70.7 million in 2003, which consisted principally
of capital expenditures as described under  Capital Expenditures and Divestitures. We made
capital expenditures in an aggregate amount of $73.1 million in 2003, consisting mainly of
improvements to our rail line. In addition, $18.4 million of our capital expenditures in 2003
consisted of upgrades of our locomotives and freight cars. Net cash used in investing activities was $295.3 million in 2002. We made capital expenditures
in an aggregate amount of $89.4 million in 2002, consisting mainly of improvements to our rail
lines, additions to operating capacity, construction of intermodal terminals and ongoing
investments. On March 27, 2002, we acquired 100.0% of the outstanding shares of Mexrail, together
with Tex-Mex and the northern portion of the international rail bridge at Nuevo Laredo-Laredo, for
an aggregate purchase price of $64.0 million. The purchase price was paid by crediting to TFM an
account receivable of $20.0 million due from Grupo TMM, with the remaining balance of $44.0 million
being paid by TFM in cash. On July 29, 2002, we acquired the 24.6% interest in Grupo TFM owned by the Mexican government
for an aggregate purchase price of $256.1 million. The $256.1 million purchase price for these
shares was financed with (1) the net proceeds from the sale of the 2012 Senior Notes and (2) $85.2
million (based on the applicable Peso-Dollar exchange rate as of July 29, 2002) payable to us by
the Mexican government as a result of our transfer of a redundant portion of our track to the
Mexican government, together with cash from our operations. -61-




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Cash Flows from Financing Activities For the year ended December 31, 2004, cash used in financing activities amounted to $61.5
million mainly as a result of the repayment of $10.0 million in outstanding principal amount under
our commercial paper program and principal payments of $71.1 million on our term loan facility. For the year ended December 31, 2003, cash used in financing activities amounted to $55.6
million mainly as a result of the repayment of $37.0 million in outstanding principal amount under
our commercial paper program and principal payments of $18.3 million on our term loan facility. For the year ended December 31, 2002, cash provided by financing activities amounted to $159.7
million (net) mainly as a result of the issuance of our $180.0 million 2012 Senior Notes and the
refinancing of our $310.0 million commercial paper program with our $128.0 million term loan
facility and $122.0 million commercial paper program. Our commercial paper program was backed by an
irrevocable letter of credit issued by Standard Chartered Bank, New York Branch. The net proceeds from the issuance of our 2012 Senior Notes was $152.4 million (net of
discounts, expenses and the cash fee paid to consenting holders of the 10.25% Senior Notes due
2007, or 2007 Senior Notes, and 2009 Debentures in our 2002 consent solicitation). We used the net
proceeds to finance a portion of the aggregate purchase price of the 24.6% interest in Grupo TFM,
which was $256.1 million. We believe that cash flow from operations, existing cash balances and vendor financing will be
sufficient to provide for our liquidity needs for the foreseeable future. Contractual Obligations The following table outlines our future obligations for payments under our indebtedness
(including capital leases), purchase obligations, operating leases and other obligations for the
periods indicated using balances as of December 31, 2004 (in thousands of U.S. Dollars). Less than 1
    
    
    1-3
    
    
    3-5
    
    
    More than 5Indebtedness(1)
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total2012 Senior Notes
    
    $
    23,659
    
    
    $
    47,319
    
    
    $
    47,319
    
    
    $
    239,148
    
    
    $
    357,4452009 Debentures
    
    
    54,796
    
    
    
    109,593
    
    
    
    525,694
    
    
    
    
    
    
    
    690,0832007 Senior Notes
    
    
    16,167
    
    
    
    174,251
    
    
    
    
    
    
    
    
    
    
    
    190,418Term loan facility(2)
    
    
    72,251
    
    
    
    69,138
    
    
    
    
    
    
    
    
    
    
    
    141,389Capital leases
    
    
    298
    
    
    
    596
    
    
    
    596
    
    
    
    69
    
    
    
    1,559Total indebtedness
    
    $
    167,171
    
    
    $
    400,897
    
    
    $
    573,609
    
    
    $
    239,217
    
    
    $
    1,380,894
 Less than 1
    
    
    1-3
    
    
    3-5
    
    
    More than 5Operating leases(3)
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLocomotive operating leases
    
    $
    29,095
    
    
    $
    58,190
    
    
    $
    58,230
    
    
    $
    285,943
    
    
    $
    431,458Railcar operating leases
    
    
    33,871
    
    
    
    58,393
    
    
    
    41,402
    
    
    
    60,107
    
    
    
    193,773Total operating leases
    
    $
    62,966
    
    
    $
    116,583
    
    
    $
    99,632
    
    
    $
    346,050
    
    
    $
    625,231
 Less than 1
    
    
    1-3
    
    
    3-5
    
    
    More than 5Purchase obligations
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLocomotive maintenance agreement
    
    $
    44,976
    
    
    $
    89,952
    
    
    $
    89,952
    
    
    $
    196,009
    
    
    $
    420,889Track maintenance and rehabilitation agreement
    
    
    9,996
    
    
    
    11,629
    
    
    
    11,012
    
    
    
    14,413
    
    
    
    47,050Total purchase obligations
    
    $
    54,972
    
    
    $
    101,581
    
    
    $
    100,964
    
    
    $
    210,422
    
    
    $
    467,939
 
 (1)
    
    These amounts include principal and interest payments and withholding tax where applicable.(2)
    
    On June 24, 2004, we entered into an amendment to our credit agreement in order to refinance
the commercial paper program. See Amendment to TFMs Credit Agreement and Refinancing of
TFMs Commercial Paper Program.(3)
    
    These amounts include the minimum lease payments. -62-




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The amounts of our obligations under the fuel purchase agreement are not included in the
table, as such amounts are based on the market price of fuel. The market price of fuel as of
December 31, 2004 was $389.72 per cubic meter. In addition to the contractual obligations set forth above, under the terms of our concession,
we are required to pay the Mexican government a concession duty equal to 0.5% of our gross revenues
during the first fifteen years of the concession period, and 1.25% of such revenues during the
remainder of the period. For the years ended December 31, 2002, 2003 and 2004, the concession duty
expense amounted to $3.3 million, $3.6 million and $3.4 million, respectively, which was recorded
as an operating expense. Following is a discussion of the terms of the contractual obligations outlined above. 12.50% Senior Notes due 2012 We issued $180.0 million principal amount of 12.50% Senior Notes due 2012, or the 2012 Senior
Notes, in June 2002. The 2012 Senior Notes are denominated in Dollars, bear interest semiannually
at a fixed rate of 12.50% and mature on June 15, 2012. The 2012 Senior Notes are unsecured, unsubordinated obligations of TFM, rank pari passuin
right of payment with all existing and future unsecured, unsubordinated obligations of TFM, and are
senior in right of payment to all future subordinated indebtedness of TFM. The 2012 Senior Notes
are redeemable at any time in the event of certain changes in Mexican tax law and at our option, in
whole or in part, on or after June 15, 2007, subject to certain limitations, at the following
redemption prices (expressed in percentages of principal amount at maturity), plus accrued and
unpaid interest, if any: RedemptionYear
    
    price2007
    
    
    106.250
    %2008
    
    
    104.167
    %2009
    
    
    102.083
    %2010 and thereafter
    
    
    100.000
    %
 11.75% Senior Discount Debentures due 2009 We issued $443.5 million principal amount of 11.75% Senior Discount Debentures due 2009, or
the 2009 Debentures, in June 1997 at a substantial discount from
their principal amount. The 2009
Debentures are denominated in Dollars and no interest accrued on the 2009 Debentures prior to June
15, 2002. On April 1, 2005, we commenced a cash tender offer and a concurrent consent solicitation for
any and all of our outstanding 2009 Debentures. On April 20, 2005, we accepted for purchase
tenders equal to approximately $386.0 million principal amount of the 2009 Debentures. The tender
offer expired on April 28, 2005. Concurrently with the tender offer, we solicited consents for
amendments to the indenture under which the 2009 Debentures were issued. The consent solicitation
expired on April 14, 2005. We received the requisite consents to amend the indenture for the 2009
Debentures and thereby eliminated substantially all of the restrictive covenants included therein
and reduced the minimum prior notice period with respect to a redemption date for outstanding 2009
Debentures from 30 days to 3 days. We called for redemption the outstanding 2009 Debentures that
were not tendered in the tender offer and on April 29, 2005, paid an aggregate of $59,970,989.47,
including principal and interest, to the holders of such 2009
Debentures. The 2009 Debentures were unconditionally guaranteed on an
unsecured, unsubordinated basis by Grupo TFM. There are currently no
2009 Debentures outstanding. -63-




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10.25% Senior Notes due 2007 We issued $150.0 million principal amount of 10.25% Senior Notes due 2007, or the 2007 Senior
Notes, in June 1997. The 2007 Senior Notes are denominated in Dollars, bear interest semiannually
at a fixed rate of 10.25% and mature on June 15, 2007. The 2007 Senior Notes are not redeemable at
our option except, subject to certain limitations, in the event of certain changes in Mexican tax
law. The 2007 Senior Notes are unsecured, unsubordinated obligations of TFM, rank pari passuin
right of payment with all existing and future unsecured, unsubordinated obligations of TFM, and are
senior in right of payment to all future subordinated indebtedness of TFM. The 2007 Senior Notes
are unconditionally guaranteed on an unsecured, unsubordinated basis by Grupo TFM. 9 3/8% Senior Notes due 2012 TFM issued $460.0 million principal amount of 9 3/8% Senior Notes due 2012, or the 9 3/8%
Notes, in April 2005. The 9 3/8% Notes are denominated in Dollars, bear interest semiannually at a
fixed rate of 9 3/8% and mature on May 1, 2012. The 9 3/8% Notes are redeemable, at TFMs option,
in whole at any time or in part from time to time, on and after May 1, 2009, upon not less than 30
nor more than 60 days notice. Subject to certain conditions, up to 35% of the principal amount of
the 9 3/8% Notes are redeemable prior to May 1, 2008. In addition, the 9 3/8% Notes are
redeemable, in whole but not in part, at TFMs option at 100% of their principal amount, together
with accrued interest, in the event of certain changes in the Mexican withholding tax rate. The
9 3/8% Notes are unsecured, unsubordinated obligations of TFM, rank
pari passu in right of
payment with all existing and future unsecured, unsubordinated obligations of TFM, and are senior
to all of its subordinated debt. The 9 3/8% Notes effectively rank junior to all of TFMs secured
indebtedness to the extent of the value of the assets securing such indebtedness. The 9 3/8% Notes
are not guaranteed by any of TFMs subsidiaries and are therefore effectively subordinated to all
liabilities of TFMs subsidiaries. The 9 3/8% Notes are not guaranteed by Grupo TFM. The 9 3/8% Notes are not included in the table of contractual obligations above which includes
obligations as of December 31, 2004. In connection with the 9 3/8% Notes, on April 19, 2005, TFM entered into a registration rights
agreement with the placement agents engaged in the offering of the 9 3/8% Notes, or the
Registration Rights Agreement. Pursuant to the terms of the Registration Rights Agreement, TFM
agreed, for the benefit of the holders of the 9 3/8% Notes, at the cost to TFM, to use its
reasonable best efforts to:  (i)
    
    file a registration statement with respect to a registered offer to exchange
the 9 3/8% Notes for new exchange notes having terms identical in all material respects
to the 9 3/8% Notes (except that the exchange notes will not contain transfer
restrictions); and(ii)
    
    complete the registered exchange offer within 270 days after the closing date
of the offering of the 9 3/8% Notes of April 19, 2005. Promptly after the exchange registration statement has been declared effective, TFM will
commence the registered exchange offer. Interest on each exchange note will accrue from the last interest payment date on which
interest was paid on the 9 3/8% Notes surrendered in exchange therefor or, if no interest has been
paid on such 9 3/8% Note, from the date of its original issue. Under certain circumstances, TFM
would be required to -64-




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file a shelf registration statement covering resales of the 9 3/8% Notes. If TFM does not
complete the registered exchange offer or any required shelf registration statement is not declared
effective, as required by the Registration Rights Agreement, additional interest will accrue on the
9 3/8% Notes and exchange notes until such registration defaults have been cured. The above description of the Registration Rights Agreement is qualified in its entirety by
reference to the terms of the Registration Rights Agreement Capital leases We have payment obligations under capital lease agreements for two real estate properties for
a period of 10 years. Our capital lease agreements contain standard provisions for this type of
transaction including an option to purchase the assets at the end of the term of the respective
lease agreement at a specified price. Operating leases Locomotive operating leases In April 1998 and September 1999, we entered into two locomotive operating lease agreements.
Each operating lease covers 75 state-of-the-art and fuel efficient locomotives and expires at
various times over the next 17 and 18 years, respectively. The lease agreements contain standard
provisions for this type of transaction, including the option to either purchase the assets or
return the assets to the lessor at the end of the lease term. Railcar operating leases We lease certain railcars under standard agreements which are classified as operating leases.
The length of the term of these agreements ranges on average from 3 to 15 years. Locomotive maintenance agreements We entered into locomotive maintenance agreements with various contractors, under which these
contractors provide both routine maintenance and major overhauls of our locomotive fleet in
accordance with the requirements of the U.S. Federal Railroad Administration (allowing our
locomotives to operate in the United States through interchanges with U.S. railroads). Our
locomotive maintenance contracts mature at various times between 2009 and 2020 and contain standard
provisions for these types of arrangements. Track maintenance and rehabilitation agreement In May 2000, we entered into a track maintenance and rehabilitation agreement with Alstom
Transporte, S.A. de C.V.which expires in 2012. Under this contract, the contractor provides both
routine maintenance and major rehabilitation of our Celaya Lázaro Cárdenas line, which extends
approximately 350 miles. The agreement contains standard provisions for this type of operating
agreement. Amendment to TFMs Credit Agreement and Refinancing of TFMs Commercial Paper Program On June 24, 2004, we concluded the negotiations with our lenders to amend our credit agreement
and refinance our commercial paper program and term loan facility. Our commercial paper program
consisted of a two-year facility in the amount of $122 million. Under the amendment, both
facilities were consolidated under a single term loan facility maturing on September 17, 2006 as
set forth in our amended and restated -65-




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credit agreement. Amounts outstanding under the term loan facility are secured by a first
priority conditional pledge on the locomotives and other rolling stock owned by Arrendadora TFM. The term loan facility is a two-year loan in the amount of $186.4 million ($162.6 million in
U.S. Dollars and Ps. 23.8 million). The Dollar loan and the Peso loan are payable in consecutive
semi-annual installments which began in September 2004 and will end in September 2006. The Dollar
loan bears interest at the London Interbank Offered Rate, or LIBOR, plus an applicable margin, and
the Peso loan bears interest at the 28 day Tasa de Interés Interbancaria de Equilibrio, or TIIE,
rate plus an applicable margin. The obligations of the term loan facility rank at least pari passu
with our other senior unsecured indebtedness. The average interest rate for the year ended December
31, 2004 was 4.05% for the Dollar portion due 2005 and 4.69% for the Dollar portion due 2006, and
10.0% for the Peso portion due 2005 and 10.59% for the Peso portion due 2006. Interest expense
related to the term loan facility amounted to $4.3 million for the year ended December 31, 2004. We
are required to prepay the loan using excess cash flow or, if we receive certain net proceeds from,
among other things, the issuance of equity, the incurrence of indebtedness, asset sales, and the
VAT refund if the amount received from the Mexican government is in cash and after any settlement
related to the Share Purchase Agreement dated January 31, 1997 between Grupo TFM, Grupo TMM, KCS
and the Mexican government, which was subsequently amended on June 9, 1997, or the TFM Share
Purchase Agreement, under which the Mexican government was granted put rights with respect to the
remaining 20% of our capital stock held by the Mexican government. As of December 31, 2004, there was $133.7 million outstanding under our term loan facility. We
anticipate replacing the current term loan facility in 2005 with a new facility, which may be a
secured facility, to improve our financial flexibility through reduced amortization and more
flexible terms and conditions. Waiver and Amendment to Credit Agreement As of April 18, 2005, TFM entered into the Waiver and Amendment. The Waiver and Amendment
allowed TFM to issue the 9 3/8% Notes in a principal amount in excess of the principal amount of
2009 Debentures outstanding and to use the amount of proceeds from the private placement of the 9
3/8% Notes in excess of the principal amount of the 2009 Debentures outstanding to pay accrued and
unpaid interest on the 2009 Debentures repurchased or redeemed, pay the fees of the underwriter
associated with the issuance of the 9 /8% Notes and the tender offer for the 2009 Debentures, pay
the premium related to the tender offer and to pay certain other expenses relating to the tender
offer and the issuance of the 9 3/8% Notes. The Waiver and Amendment also amended the amended and
restated credit agreement to allow TFM to borrow up to $25 million from KCS, on a fully
subordinated basis. Fuel purchase agreement On December 19, 1997, we entered into a fuel purchase agreement with PEMEX, under which TFM
has the obligation to purchase at market price a minimum of 15,000 cubic meters and a maximum of
20,000 cubic meters per month of PEMEX diesel fuel. The term of the agreement is indefinite but can
be terminated for justified cause by either party upon three months written notice. Capital Expenditures We made capital expenditures of $41.1 million, representing 5.9% of our transportation
revenues, in 2004, including $24.3 million for track improvements, including siding extensions and
track equipment acquisition, and $7.9 million for upgrades of our locomotives and freight cars. In
2003, we made capital expenditures in the amount of
$73.1 million representing 10.5% of our transportation revenues, including $48.7 million for
improvements to our rail line and $18.4 million for locomotive and freight car upgrades. In 2002,
we made capital expenditures in the amount -66-




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of $89.4 million,
representing 12.5% of our transportation revenues, including $35.8 million for the rehabilitation of our route between Mexico
City and Lázaro Cárdenas, $5.3 million for the construction of the Sánchez freight yard, $6.6
million for the construction of the Monterrey Intermodal Terminal and $8.0 million for the
construction of the Toluca Intermodal Terminal. Future capital expenditures include expenses we expect to incur for (i) the rehabilitation and
improvement of our rail lines, (ii) extension of sidings located in main lines, (iii) the
acquisition and improvement of track equipment, (iv) the modernization of our telecommunications
network and (v) the overhaul of our locomotive fleet. We have funded, and expect to continue to
fund, capital expenditures with funds from operating cash flows and vendor financing. C.          RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. Not applicable. D.          TREND INFORMATION See Operating Results and Liquidity and Capital Resources above for a discussion of
significant recent trends. E.          OFF-BALANCE SHEET ARRANGEMENTS We currently do not have any off-balance sheet arrangements, other than operating leases, that
have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors. F.          TABULAR DISCLOSURE See Liquidity and Capital Resources  Contractual Obligations for tabular disclosure
regarding our contractual obligations. 
 ITEM 6.          DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A.          DIRECTORS AND SENIOR MANAGEMENT Board of Directors TFMs estatutos sociales(by-laws), provide that TFMs board of directors may consist of up to
six directors and six alternates. TFMs Class I and Class II shareholder (Grupo TFM) elects five
directors and five alternate directors, and TFMs Class III shareholder elects one director and its
respective alternate director, which directorship is currently vacant. The Mexican government is
TFMs sole Class III shareholder. Its director serves only as long as the Mexican government
retains its TFM shares. TFMs board of directors is responsible for the management of TFM. The
members of the board of directors are elected annually. Grupo
TFMs estatutos sociales (by-laws), provide that
Grupo TFMs board of directors may consist of up to five directors and
five alternates. Grupo TFMs Series A-I and Series A-II
shareholder (KCS) elects four directors and four alternate directors,
and Grupo TFMs Series L shareholder elects one director and
its respective alternate director. TFM is Grupo TFMs sole
Series L shareholder. Grupo TFMs board of directors is
responsible for the management of Grupo TFM. The members of the board
of directors are elected annually. The board of directors of
Grupo TFM is identical to that of TFM. -67-




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The current members of the board of directors of TFM and Grupo TFM and their principal
occupations are as follows: Year ofName
    
    Appointment
    
    Position Held
    AgeMichael R. Haverty
    
    
    1997
    
    
    Chairman, President and Chief Executive
    
    
    60Arthur L. Shoener
    
    
    2005
    
    
    Officer of KCS
Executive Vice President and Chief
    
    
    58James R. Jones
    
    
    2001
    
    
    Operating Officer of KCS
Director of KCS
    
    
    65Robert B. Terry
    
    
    2005
    
    
    Senior Vice President and General Counsel
    
    
    48Lawrence M. Lawrence
    
    
    2005
    
    
    Assistant to the Chairman of KCS
    
    
    42
 The
alternate directors of TFM and Grupo TFM are Scott E. Arvidson, Robert M. Chapman, Jay M. Nadlman,
Ronald G. Russ and Paul J. Weyandt. Michael R. Haverty. Mr. Haverty was elected as Director in 1997 and as Chairman of the Board
of Directors in 2005. Mr. Haverty serves as a director, Chairman, President and Chief Executive
Officer of KCS. Mr. Haverty is also Chairman of the Executive Committee of Grupo TFM. Mr. Haverty
served as Chairman and Chief Executive Officer of Haverty Corporation from 1993 to 1995, acted as
an independent executive transportation adviser from 1991 to 1993, and served as President and
Chief Operating Officer of the Atchison, Topeka and Santa Fe Railway Company from 1989 to 1991. Arthur L. Schoener. Mr. Schoener joined KCS in January 2005 as the Executive Vice President
and Chief Operating Officer. Mr. Shoener also serves as the President and Chief Executive Officer
of KCSR and Tex-Mex. Prior to joining KCS, Mr. Shoener established a transportation consulting
firm with domestic and international clients and he served as executive vice president of
operations for the Union Pacific Railroad Company from 1991 through 1997. James R. Jones. Mr. Jones was elected in 2001. Mr. Jones has been a Director of KCS since
1997. He is Special Counsel to the firm of Manatt, Phelps & Phillips. Mr. Jones was President of
Warnaco Inc. International Division from 1997 to 1998, U.S. Ambassador to Mexico from 1993 to 1997,
and Chairman and Chief Executive Officer of the American Stock Exchange from 1989 to 1993. Mr.
Jones served as a member of the U.S. Congress, representing the State of Oklahoma for 14 years. He
was White House Special Assistant and Appointments Secretary to President Lyndon B. Johnson. Mr.
Jones is also a director of Anheuser-Busch and Grupo Modelo, S.A. de C.V. Robert B. Terry. Mr. Terry joined KCS as Senior Vice President and General Counsel in 2004
from Farmland Industries, Inc., where he held a variety of senior executive positions from 1989 to
2004, including president and chief executive officer from 2002 to 2004 and executive vice
president, general counsel and corporate secretary from 2000 to 2002. Lawrence M. Lawrence. As Assistant to the Chairman of KCS, Mr. Lawrence has been special
advisor to KCSs management in the acquisition of Grupo TFM. Before joining KCS in 2001, Mr.
Lawrence was a business and strategy consultant for 15 years, primarily at McKinsey & Co. and KPMG. On
April 1, 2005, the holder of the Class I and II shares in
TFM, and the Series A and L shares in Grupo TFM, elected
the directors of TFM, and Grupo TFM, respectively, for a term ending on April 1, 2006. Under Mexican law, they will remain in place until new
directors are elected at a subsequent shareholders meeting. -68-




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On April 1, 2005, José Serrano Segovia, Gerald K. Davies, Javier Segovia Serrano and Ramón
Serrano Segovia were removed from the board of directors of both TFM and Grupo TFM, Horacio Reyes
Guzmán was removed from the board of TFM and Jacinto Marina Cortés was removed from the board of
Grupo TFM. The directors were replaced, on April 1, 2005, by Arthur L. Shoener, Robert B. Terry and
Lawrence M. Lawrence. Officers TFM The officers of TFM serve at the discretion of the companys board of directors. The
executive officers of TFM and their titles are as follows: Year ofName
    
    Appointment
    
    Position Held
    
    AgeMichael R. Haverty
    
    
    2005
    
    
    Chairman of the Board of Directors
    
    
    60Francisco Javier Rión
    
    
    2005
    
    
    Chief Executive Officer
    
    
    50Paul J. Weyandt
    
    
    2005
    
    
    Interim Chief Financial Officer
    
    
    52Manuel V. Zulaica
    
    
    2000
    
    
    Senior Vice President-Operations
    
    
    38Victor Manuel Huacuja Leyzaola
    
    
    2005
    
    
    Director of Human Resources
    
    
    37Jesús Manuel Meza Quijada
    
    
    2005
    
    
    Director of Labor Relations
    
    
    51Marcoflavio Rigada Soto
    
    
    2003
    
    
    General Counsel
    
    
    32Guillermo Gutiérrez Muro
    
    
    1998
    
    
    Internal Audit Director
    
    
    69Cesar Polack Belaunde
    
    
    2003
    
    
    Chief Engineer
    
    
    50Carlos Aguilar
    
    
    1997
    
    
    Administrative Director (Controller)
    
    
    55Scott E. Arvidson
    
    
    2005
    
    
    Director of Information Technology and
Telecommunications
    
    
    45Francisco J. Fernández Galeazzi
    
    
    2004
    
    
    Procurement Director
    
    
    46Federico Díaz Page
    
    
    2005
    
    
    Special Project and Joint Operations Director
    
    
    49Frank P. Hernández Pantoja
    
    
    1997
    
    
    Chief Transportation Officer
    
    
    54Jorge Manuel Márquez Abreu
    
    
    2005
    
    
    Customer Service, Fleet Distribution and
Strategic Analysis Director
    
    
    33Carlos Ignacio Porragas
González
    
    
    2005
    
    
    Sales and Marketing Director
    
    
    38James Kniestedt
    
    
    2002
    
    
    Vice PresidentSecurity and Railroad Police
    
    
    41
 Michael R. Haverty, Chairman of the Board of Directors. Mr. Haverty was elected as Chairman
of our Board of Directors in 2005. Mr. Haverty serves as a director, Chairman, President and Chief
Executive Officer of KCS. Mr. Haverty is also Chairman of the Executive Committee of Grupo TFM.
Mr. Haverty served as Chairman and Chief Executive Officer of Haverty Corporation from 1993 to
1995, acted as an independent executive transportation adviser from 1991 to 1993, and served as
President and Chief Operating Officer of the Atchison, Topeka and Santa Fe Railway Company from
1989 to 1991. Francisco Javier Rión, Chief Executive Officer. On July 5, 2005, Francisco Javier Rión joined
TFM as Chief Executive Officer of each company. Mr. Rión replaced Vicente Corta Fernández, a
partner at the law firm of White & Case, S.C. in Mexico City, who had served as interim Chief
Executive Officer since replacing Mario Mohar Ponce on April 1, 2005. Mr. Rión joins TFM from
Bombardier Transportation, where he had served as president of its London-based Rail Control
Solutions Division since May 2001. From July 1995 to April 2001, Mr. Rión served as Bombardiers
president and managing director in Mexico City. From July 1991 to 1995, he was general director of
Dina Autobuses/ConsorcioG-Grupo Dina in Mexico City. From 1976 to 1991, Mr. Rión held a number of
operations, manufacturing and engineering management positions with Ford Motor Company, S.A. de
C.V. Mr. Rión was also a member of the North American -69-




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Advisory Committee of the Mexican Investment Board from 1997 through 2000. Mr. Rión holds an
industrial engineering degree from the Universidad La Salle in Mexico and has postgraduate studies
in Finance at the University of Michigan and in Business Administration at the Instituto
Panamericano de Alta Dirección de Empresa. Paul J. Weyandt, Interim Chief Financial Officer.Mr. Weyandt has served as Senior Vice
PresidentFinance and Treasurer of KCS and of KCSR since May 2005. From September 2001 until May
2005 he served as Vice President and Treasurer of KCS and of KCSR. Before joining KCS, Mr. Weyandt
was a consultant to the Structured Finance Group of GE Capital Corporation from May 2001 to
September 2001. Prior to consulting, Mr. Weyandt spent 23 years with the BNSF Railway Company,
most recently as Assistant Vice PresidentFinance and Assistant Treasurer. On April 1, 2005, Mr.
Weyandt replaced our prior Chief Financial Officer, Jacinto Marina Cortés, as Interim Chief
Financial Officer pending the hiring of a permanent replacement. Manuel V. Zulaica, Senior Vice President-Operations.Mr. Zulaica joined us in February 2002
as our Chief Transportation Officer and since September 2003 has served as Senior Vice
President-Operations. Before he joined us, Mr. Zulaica served as the General Manager of Tex-Mex
from May 2000 to February 2002. Mr. Zulaica has over 14 years of experience in the railroad
industry, having worked in various positions in the U.S., Canada and Mexico for the Canadian
Pacific Railroad. Victor M. Huacuja, Director of Human Resources. Mr. Huacuja joined us in January 1998. Mr.
Huacuja has 13 years of experience in organizational development and human resources having served
in various positions in Mexico for Celanese Mexicana, S.A. de C.V., Kimberly-Clark de México, S.A. de C.V. and PROSA. Jesús M. Meza, Director of Labor Relations.Mr. Meza joined us in September 1997. Mr. Meza
has more than 30 years of experience in administration, human resources and labor relations in a
variety of different companies and positions. Marcoflavio Rigada Soto, General Counsel. Mr. Rigada rejoined TFM in October 2002 and became
our General Counsel in June 2003. Mr. Rigada has 12 years of legal experience, having served in
various positions in Mexico both in the public and private sectors. He has worked at the Ministry
of Transportation, Goodrich Riquelme and Associates, a corporate law firm, and TFM, as corporate
and litigation manager. Before rejoining TFM, Mr. Rigada was at the Mexican Mission to the World
Trade Organization in Geneva, Switzerland, handling negotiations and litigation within the areas of
trade in services, foreign investment, environment and e-commerce, among others. Guillermo Gutiérrez Muro, Internal Audit Director. Mr. Gutiérrez joined us in February 1998
as our Internal Audit Director. Mr. Gutiérrez has over 38 years of experience in finance, having
served in various positions for the IBM Corporation for 17 years. Mr. Gutiérrez served in various
top management finance positions for IBM in Mexico City and at IBMs headquarters in the U.S. He
also worked eight years for Citibank, where he served as Vice President for Financial Control for
the Panamex Region in Mexico City and as Vice President for Financial Control for the Latin America
Investment Bank in New York. Cesar Polack Belaunde, Chief Engineer. Mr. Polack joined us in April 2003 as our Chief
Engineer. Mr. Polack has 24 years of experience in the construction industry, having participated
in the engineering and construction of power plants, mining and infrastructure projects and
chemical plants in Mexico, Colombia, Ecuador, Peru and Chile. From 1997 through 2002, Mr. Polack
worked with the Bechtel Group (USA), participating in infrastructure, power and mining projects in
Chile, Peru, Colombia, Mexico and the U.S. From 1981 through 1996, Mr. Polack worked with Bufete
Industrial, S.A., participating in power and industrial projects in Mexico, Ecuador and Chile. -70-




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Carlos Aguilar, Administrative Director (Controller). Mr. Aguilar joined us in March 1997.
From 1993 to March 1997, Mr. Aguilar served as Corporate Controller for Grupo TMM. From 1990 to
1993, Mr. Aguilar served as Administrative Director of Tecomar, S.A. de C.V., a Mexican shipping
company, now owned by Grupo TMM. In addition, Mr. Aguilar served as Controller for more than 10
years at Hules Mexicanos, S.A. de C.V. and Cementos Anahuac, S.A. de C.V. Scott E. Arvidson, Director of Information Technology and Telecommunications. Mr. Arvidson
joined us on April, 2005 as Director of Information Technology and Telecommunications. From 1990
to 2005, Mr. Arvidson was employed at KCS where he served in various management positions within
the Information Technology and Business Solutions area and since January 2000 as Vice President and
Chief Information Officer. Francisco J. Fernández Galeazzi, Procurement Director. Mr. Fernández joined us in March 2004
as our Procurement Director. Mr. Fernández has over 19 years experience in procurement, customer
service and sales in the textile industry, telecommunications, leasing and railroad services
industries. Prior to joining us, he worked at DLG Industrias and Servicios Ferroviarios de
Norteamérica, where he was Procurement and Marketing Director. Federico Díaz Page, Special Project and Joint Operations Director. Mr. Díaz joined us in July
1997 as Chief Transportation Officer and became our Special Project and Joint Operations Director
in May 2005. Mr. Díaz has 12 years of experience in the field, having served in various positions
in Mexico for Ford Motor Company, International Consultants, S.A. and Engineering Developments,
S.A. in the design and procurement areas. Frank P. Hernández, Chief Transportation Officer. Mr. Hernández joined us in September 1997
as General Superintendent of Safety and Rules. Mr. Hernández has over 30 years of experience in
the railroad industry. Prior to joining us, he worked for BNSF Railway Company, holding a number
of high level management positions in operations. Mr. Hernández also serves as our designated
technical expert and represents us before various Mexican regulatory agencies as well as U.S.
Federal Railroad Administration and AAR technical committees in the U.S. Jorge Manuel Márquez Abreu, Customer Service, Fleet Distribution and Strategic Analysis
Director.Mr. Márquez joined us in May 2002 as our Planning and Marketing Director and became our
Customer Service, Fleet Distribution and Strategic Analysis Director in June 2005. Prior to
joining us Mr. Márquez was Director of Operations of Grupo Telefónica in Mexico for two years,
where he headed the initiative for logistics and transportation technology tools. Prior to working
at Grupo Telefónica, Mr. Márquez was Deputy Director of Operative Evaluation at Grupo TMM for four
years. Carlos Ignacio Porragas González, Sales and Marketing Director.Mr. Porragas joined us in
July 2001 and has been our Sales and Marketing Director since June 2005. Mr. Porragas has more than
11 years of experience in the areas of strategic planning, marketing, commercialization, operations
and investments. Prior to joining us, Mr. Porragas was Investment Director for Baring Private
Equity Partners, a private equity fund sponsored by the ING Group. Mr. Porragas also served as
both a marketing manager and a commercial manager at Monsanto Company. James Kniestedt, Vice President  Security and Railroad Police. Mr. Kniestedt joined us in
his current position in September 2002. Mr. Kniestedt has more than 20 years of security
experience. He has served as director of security for various Mexican companies, including GRUMA,
S.A. de C.V. and Cydsa Corporativo, S.A. de C.V. Prior to holding these positions, Mr. Kniestedt
served in Special Operations of the U.S. government. -71-




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Grupo TFM The officers of Grupo TFM serve at the discretion of the companys board of directors. The
executive officers of Grupo TFM and their titles are as follows: Year ofName
    
    Appointment
    
    Position Held
    
    AgeMichael R. Haverty
    
    
    2005
    
    
    Chairman of the Board of Directors
    
    
    60Francisco Javier Rión
    
    
    2005
    
    
    Chief Executive Officer
    
    
    50Paul J. Weyandt
    
    
    2005
    
    
    Interim Chief Financial Officer
    
    
    52Marcoflavio
Rigada Soto
    
    
    2003
    
    
    General Counsel
    
    
    32
 Please see the information set forth above under TFM with respect to each of the officers listed
in this table. Each such officer began his service with Grupo TFM simultaneously with the
beginning of his service on behalf of TFM. B.          COMPENSATION For the year ended December 31, 2004, the aggregate compensation, including salary and fringe
benefits, we paid to our directors, alternate directors and executive officers for services in all
capacities was approximately $5.0 million. We have established an annual bonus compensation program for our top management, based on our
performance results and the contribution of each individual participant. The aggregate compensation
disclosed above for 2004 includes all bonuses paid under the program in 2004. None of our executive officers or directors directly owns any shares of TFM, and no
arrangement exists between us and our employees that involve the issue or grant of options or
shares or securities of TFM. Pension, Retirement or Similar Benefits Seniority premiums to which employees are entitled upon termination of employment after 15
years of service are expensed in the years in which the services are rendered. Beginning in 2002,
we recognized seniority premiums based on actuarial computations. As of December 31, 2003 and
2004, we had accrued $0.85 million and $1.0 million, respectively, to provide seniority premiums.
Other compensation based on length of service to which employees may be entitled in the event of
dismissal or death, in accordance with Mexican federal law, are charged to the statement of income
in the year in which they become payable. See Note 2 to our financial statements. C.          BOARD PRACTICES See Directors and Senior Management above. None of the directors of TFM or Grupo TFM has
any type of arrangement with either TFM or Grupo TFM whereby such director would receive benefits
upon termination of employment. Audit Committee We are not required to have an audit committee nor an audit committee financial expert
because none of our securities are listed on a securities exchange or otherwise quoted in the
United States. Nonetheless, after the acquisition by KCS of the controlling interest in TFM, TFM
formed an audit committee composed of Lawrence M. Lawrence, Ronald G. Russ (alternate director of
the board of directors of TFM) and Robert B. Terry. -72-




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Grupo TFM does not have a formal audit committee. Guillermo Gutiérrez Muro, the Internal
Audit Director of Grupo TFM, reports auditing matters directly to Grupo TFMs board of directors. Remuneration Committee Neither TFM nor Grupo TFM has a remuneration committee. D.          EMPLOYEES Effective in July 2003, our labor agreement covering 71% of our workforce was renewed for a
two-year term ending in 2005. Under Mexican law, the compensation terms of that labor agreement
are subject to renegotiation on an annual basis. All other terms of the labor agreement are to be
renegotiated every two years. The labor agreement establishes a labor regime under which we have
significantly increased operating flexibility as compared with that of our predecessor, FNM,
thereby allowing us to compete effectively with other rail carriers and the trucking sector and to
react to changing economic and market conditions. In addition to the labor agreement, our
relationship with our employees is regulated by the Ley Federal del Trabajo(the Federal Labor
Law). We believe that the labor agreement provides us with operating flexibility comparable to that
enjoyed by most major U.S. railroads. The labor agreement affords us flexibility with respect to
the implementation of our business strategy by allowing us:  
    
    to select and promote workers based on their qualifications and performance;
    
    to allocate workers as needed; and
    
    to reward workers based on merit. We reduced the number of our full-time employees from 3,508 at the end of 1998 to 3,371 at the
end of 2002. As of December 31, 2003, we had 3,392 full-time employees and as of December 31,
2004, we had 3,399 full-time employees of which 2,399 were union members. We believe that
streamlining our labor force has helped us to contain our costs and increase revenues without
adversely affecting operations. We hired most of our workers from among the former employees of
FNM. There have been no work stoppages and we believe that we have good relationships with our
employees and the unions to which some of our employees belong. E.          SHARE OWNERSHIP None of the executive officers or directors of TFM or Grupo TFM directly owns any shares of
TFM or Grupo TFM, and no arrangement exists between TFM or Grupo TFM and its employees that
involves the issue or grant of options or shares or securities of TFM or Grupo TFM. 
 ITEM 7.          MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A.          MAJOR SHAREHOLDERS TFM As a result of the acquisition by KCS of Grupo TMMs shares in Grupo TFM, KCS has a
controlling interest in Grupo TFM, consisting of 75.4% of the outstanding shares (100% of the
shares of Grupo TFM entitled to full voting rights). By virtue of Grupo TFMs ownership interest
in TFM, KCS has a controlling interest in TFM. -73-




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The following table sets forth information, as of June 30, 2005, with respect to the ownership
of our outstanding Series A Shares, without par value, and our outstanding Series B Shares, without
par value. The Series A Shares can be held only by individuals or companies of Mexican
nationality, or by foreigners expressly authorized by the National Commission of Foreign
Investments to hold such shares. The Series B Shares can be held by individuals or companies of
Mexican and non-Mexican nationality. The Series A Shares and the Series B Shares are subdivided
into Classes I, II and III. At all times, Class I Series A Shares and Class I Series B Shares must
represent 51.0% of our capital, Class II Series A Shares and Class II Series B Shares must
represent 29.0% of our capital, and Class III Series L Shares must represent 20.0% of our capital. Series A Shares
    
    
    Series B Shares
    
    
    TotalShareholder
    
    Shares
    
    
    Percent
    
    
    Shares
    
    
    Percent
    
    
    Shares
    
    
    PercentGrupo TFM (Class I)
    
    
    359,975,150
    
    
    
    51.0
    %
    
    
    345,858,478
    
    
    
    51.0
    %
    
    
    705,833,628
    
    
    
    51.0
    %Grupo TFM (Class II)
    
    
    204,691,752
    
    
    
    29.0
    
    
    
    196,664,624
    
    
    
    29.0
    
    
    
    401,356,376
    
    
    
    29.0Mexican Government (Class III)
    
    
    141,166,725
    
    
    
    20.0
    
    
    
    135,630,776
    
    
    
    20.0
    
    
    
    276,797,501
    
    
    
    20.0Total
    
    
    705,833,627
    
    
    
    100.0
    %
    
    
    678,153,878
    
    
    
    100.0
    %
    
    
    1,383,987,505
    
    
    
    100.0
    %
 The Mexican government retained its 20% interest in TFM in connection with the
privatization of our rail lines in 1997, and pursuant to the TFM Share Purchase Agreement, the
Mexican government has the right, subject to certain conditions, to require Grupo TFM to purchase
such interest at the original Peso purchase price per share paid by Grupo TFM for its 80.0%
interest in TFM, indexed to account for Mexican inflation. If Grupo TFM does not purchase the
Mexican governments interest, the Mexican government may require Grupo TMM and KCS, or either
Grupo TMM or KCS alone, to purchase the TFM shares at this price and release Grupo TFM from its
obligation. Under the terms of the Amended and Restated Acquisition
Agreement, KCS has agreed to indemnify Grupo TMM for its obligation to purchase the Mexican governments interest. The price of the
Mexican governments interest, as indexed for Mexican inflation, was approximately 1,570.3 million
UDIs as of October 31, 2003, which as of December 31, 2004 represented $498.3 million. On November
3, 2003, the Ministry of Transportation notified Grupo TFM that it had complied with the
requirements for the exercise of its put rights as set out in the TFM Share Purchase Agreement and
that all procedures required to execute the sale of the Mexican governments TFM shares would be
made through the Mexican Treasury. Grupo TFM requested that a federal court review the Ministry of
Transportations communications with respect to the Mexican governments put rights. See Item 8.
Financial InformationConsolidated Statements and Other Financial Information3⁄4Legal
Proceedings3⁄4Disputes with Mexican Government3⁄4Other Litigation3⁄4Miscellaneous Legal
Proceedings3⁄4Grupo TFMs Dispute with Mexican Governments Put Rights. The Class I and Class II Series A Shares and the Class I and Class II Series B Shares are
entitled to elect five of TFMs six directors, and their corresponding alternate directors. The
Class III Series A Shares and Class III Series B Shares are entitled to elect one of TFMs six
directors, and his or her alternate director. The voting rights attached to the Class III Shares
are limited to the following matters:  
    
    extension of TFMs corporate life;
    
    anticipated dissolution of TFM;
    
    change in TFMs corporate purpose;
    
    change in TFMs nationality;
    
    change in the form of entity of TFM;
    
    merger or spin-off of TFM; -74-




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
    
    granting of any guaranty for obligations of third parties not made in TFMs ordinary
course of business;
    
    extension of credit to third parties not made in TFMs ordinary course of business;
    
    acquisitions not in furtherance of TFMs corporate purpose and not made in TFMs
ordinary course of business for an amount exceeding $1.0 million;
    
    cancellation or call by TFM of any series or subseries of shares where the Class III
shareholders have any interest;
    
    cancellation of the registration of the shares issued by TFM with the Special
Section of the National Registry of Securities and Intermediaries maintained by
Mexicos National Banking and Securities Commission or any other stock exchange where
Class III shares are registered; and
    
    election of the director of TFM appointed by holders of the Class III shares. Except as described above, holders of the Class III shares have no voting rights. The Class
III shares do not confer upon holders any right to preferred dividends. Grupo TFM The following table sets forth information, as of June 30, 2005, with respect to the
ownership of Grupo TFMs Series A Shares, without par value, and Grupo TFMs Series L Shares,
without par value: Series A Shares
    
    
    Series L SharesShareholder
    
    Shares
    
    
    Percent
    
    
    Shares
    
    
    PercentKara Sub, Inc.*
    
    
    10,797,474
    
    
    
    25
    %
    
    
    
    
    
    
    KCS Investment I, Ltd.*
    
    
    10,797,474
    
    
    
    25
    %
    
    
    
    
    
    
    Caymex Transportation, Inc.*
    
    
    450,499
    
    
    
    1
    %
    
    
    
    
    
    
    Nafta Rail S.A. de C.V.*
    
    
    21,180,920
    
    
    
    49.0
    %
    
    
    
    
    
    
    TFM
    
    
    
    
    
    
    
    
    
    
    14,124,435
    
    
    
    100.0
    %Total
    
    
    43,226,367
    
    
    
    100.0
    %
    
    
    14,124,435
    
    
    
    100.0
    %
 
 *
    
    Entities controlled by KCS. On April 20, 2003, Grupo TMM and KCS entered into the Acquisition Agreement, under the
terms of which Grupo TMM was to sell its entire interest in Grupo TFM to KCS. KCS and Grupo TMM
have been in dispute over certain actions taken subsequent to the Acquisition Agreement. On December 15, 2004, KCS and Grupo TMM entered into the Amended and Restated Acquisition
Agreement whereby Grupo TMM would sell its 51.0% voting interest in Grupo TFM to KCS for $200
million in cash, 18 million shares of KCS common stock, a $47 million two-year promissory note, and
up to $110 million payable in a combination of cash and KCS common stock upon successful resolution
of the current proceedings related to the VAT claim and the Mexican governments put right against
Grupo TFM. The $47 million promissory note and a portion of the $110 million contingent payment
are subject to certain escrow arrangements to cover potential indemnification claims. -75-




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On April 1, 2005, KCS and Grupo TMM completed the transaction and as a result, KCS has a
controlling interest in Grupo TFM and, by virtue of Grupo TFMs ownership interest in TFM, KCS has
a controlling interest in TFM. Grupo TMM holds approximately 22% of the outstanding shares of KCS
common stock. The Grupo TFM Series A Shares are entitled to elect four of Grupo TFMs five directors, and
their corresponding alternate directors. The Grupo TFM Series A Shares can be held only by
individuals or companies of Mexican or non-Mexican nationality. The Series A Shares may not be
held by foreign governments or foreign states. The Grupo TFM Series L Shares are entitled to elect one of Grupo TFMs five directors, and
their corresponding alternate directors. Grupo TFM Series L Shares do not confer upon holders
any right to preferred dividends. Pursuant to the by-laws of Grupo TFM, the voting rights attached
to the Grupo TFM Series L Shares shall be limited to the following matters:  
    
    extension of the corporate life of Grupo TFM;
    
    anticipated dissolution of Grupo TFM;
    
    change in Grupo TFMs corporate purpose;
    
    change in Grupo TFMs nationality;
    
    change in the form of entity of Grupo TFM;
    
    merger or spin-off of Grupo TFM; and
    
    cancellation of shares issued by Grupo TFM with the Special Section of the National
Registry of Securities or any other stock exchange where Series L shares are
registered. Except as described above, holders of Grupo TFMs Series L Shares have no voting rights. In addition, Grupo TFMs by-laws authorize the issuance of Grupo TFM Series L Shares, without
par value, pursuant to a meeting of the shareholders of Grupo TFM. To date, the shareholders have
not authorized the issuance of any such shares, other than in connection with TFMs purchase of the
Mexican governments 24.6% interest in Grupo TFM. Except as provided in the by-laws, the voting
rights attached to the Grupo TFM Series L Shares are limited to those voting rights conferred to
such shares in the general shareholders meeting in which their issuance is approved. B.          RELATED PARTY TRANSACTIONS We engage in related party transactions with certain of our affiliates and related parties,
some of which are of a recurring nature. Financial information with respect to certain material
related party transactions is set forth in Note 11 to our financial statements included elsewhere
in this annual report. The following summarizes the material transactions we engaged in with our
principal affiliates and related parties during fiscal year 2004 or that are outstanding as of June
30, 2005. Grupo TMM Management Services Agreement We and Grupo TMM entered into a management services agreement, dated May 9, 1997, as amended.
Under the agreement, Grupo TMM provided consulting and management services to TFM and was -76-




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entitled to receive (i) certain costs and expenses, (ii) an aggregate of $2,500,000 paid in
nine equal monthly installments beginning April 15, 2002, as compensation for services rendered
between January 1, 1999 and December 31, 2000, (iii) a lump sum payment of $2,500,000 on or before
January 2, 2003, as compensation for services rendered from January 1, 2001 through December 31,
2002, and (iv) quarterly service payments, payable in arrears, for the period beginning January 1,
2003, at an annual rate of $1,250,000. The agreement was terminated on April 1, 2005, upon the
consummation of the acquisition by KCS from Grupo TMM of all of its shares of Grupo TFM. KCS Transportation Company, or KCSTC, Management Services Agreement We and KCSTC, a wholly owned subsidiary of KCS, entered into a management services agreement
pursuant to which KCSTC made available to us certain railroad consulting and management services
commencing May 1997 for a term of 12 months and which was renewable for additional one-year periods
by agreement of the parties. Under the terms of the agreement, KCSTC was to be reimbursed for its
costs and expenses incurred in the performance of such services. On April 30, 2002, we and KCS, as
successor in interest through merger with KCSTC, as well as we and Grupo TMM, entered into an
amendment to this management services agreement that provided for automatic annual renewal of the
agreement and compensated KCS for its services under the agreement. The amendment stated that KCS
was entitled to receive management fees equivalent to an annual rate of $1.3 million. The
management services agreement was terminable by either party upon 60 days written notice. The
agreement was terminated on April 1, 2005, upon the consummation of the acquisition by KCS from
Grupo TMM of all of its shares of Grupo TFM. Association in Participation Agreement On June 23, 1997, Grupo TFM, as associator, and TFM, as associated, entered into an
Association in Participation Agreement under which TFM has the right to participate in the profit,
or losses, as the case may be, derived from the sale by Grupo TFM of 469,300,000 of TFMs shares.
The sale of the shares covered by the agreement shall be made no later than the fifteenth
anniversary of the date of the agreement. In exchange, TFM transferred to Grupo TFM an amount
equal to $593.4 million, which Grupo TFM used to make a second payment under the TFM Share Purchase
Agreement. The agreement also provides that Grupo TFM shall supply to TFM all of its knowledge and
experience for the exclusive purpose of assuring that the operations of TFM be optimized and,
consequently, to increase the value of TFM shares. The price obtained from the sale of TFMs shares covered by the agreement shall be applied as
follows: (a) first, to TFM in payment of the principal amount of its non-interest bearing
receivable; (b) second, to the taxes which may result from the sale of the TFM shares covered by
this agreement, and (c) the remainder, if any, shall be distributed between TFM and Grupo TFM up to
an amount of $3.2 billion depending on the sale date, with 99% to TFM and 1% to Grupo TFM and
finally, the remaining amounts, if any, shall be distributed 1% to TFM and 99% to Grupo TFM. This agreement, is treated as a long-term zero-coupon note receivable from stockholder with an
embedded feature linked to the value of TFM shares. See Notes 11 and 18 to our financial
statements. Stock Purchase Agreement On August 16, 2004, we sold shares representing 51.0% of Mexrail to KCS for approximately
$32.7 million. Tex-Mex repaid to us in December 2004 certain advances from us in an amount of
approximately $9 million and KCS paid to Grupo TMM, at the closing, outstanding payables of
approximately $0.4 million. The Mexrail shares were placed in a voting trust pending regulatory
approval by the STB of KCSs common control of Tex-Mex, KCSR, and Gateway Eastern (which is not
party to the transaction). On November 29, 2004, the STB approved KCSs application for authority
to control Tex-Mex and the U.S. portion of the -77-




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international rail bridge at Laredo, Texas. That authority became final on December 29, 2004.
On January 1, 2005, the shares representing 51% of Mexrail were released from the voting trust to
KCS, and KCS took control of Tex-Mex. Under the agreement, KCS has an exclusive option to purchase from TFM the remaining 49% of
Mexrail on or before October 31, 2005. If KCS does not exercise this option by October 31, 2005,
KCS becomes obligated to purchase such remaining shares on October 31, 2005 at a purchase price of
approximately $31.4 million. KCS further agreed to comply with all prior STB rulings concerning
the international bridge between Laredo and Nuevo Laredo, and to operate such bridge under the
terms of applicable bridge agreements and protocols. Recurring Transactions with Grupo TFM We and Grupo TFM have internal arrangements under which each company may receive or transfer
money in accordance with its cash requirements. As of December 31, 2003 and 2004, we have a
non-interest bearing receivable from Grupo TFM of $67.7 million, mainly due for the transfer that
we made to Grupo TFM in order to permit Grupo TFM to make the second payment under the TFM Share
Purchase Agreement. See Notes 11 and 18 to our financial statements included elsewhere in this
annual report. Amended Acquisition Agreement with KCS On April 1, 2005, KCS and Grupo TMM completed a transaction under which KCS acquired control
of us through the purchase of shares of the common stock of Grupo TFM for the purchase price of
$200 million in cash, 18,000,000 shares of the common stock of KCS, and a promissory note in the
aggregate principal amount of $47 million, payable subject to the terms of an escrow agreement
covering such notes. As a result of the transaction, KCS has a controlling interest in Grupo TFM
and, by virtue of Grupo TFMs ownership interest in TFM, KCS has a controlling interest in TFM. In
addition, upon resolution of the VAT refund claim and Mexican governments put claim, KCS may be
obligated to pay Grupo TMM up to $110 million payable in a combination of cash and KCS common
stock. Transactions withTMM Logistics, S.A. de C.V. We enter into contractual agreements with TMM Logistics, S.A. de C.V.(which is controlled by
Grupo TMM). The agreements cover administrative and management services, yard and terminal
services, vehicle and equipment transportation, container loading and unloading, and logistics. C.          INTERESTS OF EXPERTS AND COUNSEL Not applicable. 
 ITEM 8.          FINANCIAL INFORMATION A.          CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION See Item 18. Financial Statements. -78-




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Legal Proceedings Disputes with Mexican Government Value Added Tax Lawsuit We have filed a claim for the refund of Ps. 2,111 million (approximately $262 million) of VAT
paid in connection with the acquisition of the concession rights. On September 25, 2002 the Federal Court issued its judgment in our favor on the VAT refund
claim, which has been pending in the Mexican courts since 1997. The claim arose out of the Mexican
Treasurys delivery of a VAT refund certificate to a Mexican governmental agency rather than to us.
By a unanimous decision, a three-judge panel of the Federal Court vacated a prior judgment of the
Fiscal Court and remanded the case to the Fiscal Court with specific instructions to enter a new
decision consistent with the guidance provided by the Federal Courts ruling. The Federal Courts
ruling required the fiscal authorities to issue the VAT refund certificate in our name. On December
6, 2002 the upper chamber of the Fiscal Court issued a ruling denying our right to receive a VAT
refund from the Mexican government. On January 8, 2003, we were officially notified of the new
judgment of the Fiscal Court and on January 29, 2003, we filed the appropriate appeal. On June 11, 2003, the Federal Court issued a judgment in our favor against the ruling of the
Fiscal Court. On July 9, 2003 we were formally notified by a three-judge panel of the Federal Court
of its June 11, 2003 judgment, which granted us an amparo against the
ruling of the Fiscal Court issued on December 6, 2002, which had denied us the right to receive the
VAT refund certificate. The Federal Court found that the VAT refund certificate had not been
delivered to us, and confirmed that we had the right to receive the VAT refund certificate. The
Federal Courts ruling stated that the Mexican Treasurys decision denying delivery of the VAT
refund certificate to us violated Mexican Law, and it instructed that the VAT refund certificate be
issued to us on the terms established by Article 22 of the Mexican Fiscal Code in effect at that
time. In a public session held on August 13, 2003, the Fiscal Court issued a resolution regarding
our VAT lawsuit vacating its previous resolution of December 6, 2002, and in strict compliance with
the ruling issued on June 11, 2003 by the Federal Court, resolved that we had proved our case, and
that a ficta denial occurred, declaring such denial null and void as ordered by the Federal
Court. On August 25, 2003, we were formally notified by the Fiscal Court of its resolution
regarding our VAT lawsuit. The resolution was the result of the unanimous vote of the nine
magistrates present at the public session. The Fiscal Court ordered the issuance of the VAT refund
certificate to us under the terms established by Article 22 of the Mexican Fiscal Code in effect in
1997. On October 13, 2003, the Mexican Tax Attorney of the Federal Government (Procuraduría Fiscal
de la Federación)filed for a review of the Fiscal Courts ruling issued on August 13, 2003. On
November 5, 2003, the Federal Court found no merit to the requested review and as a result, the
August 13, 2003 Fiscal Courts ruling remained in place. On January 19, 2004, the Mexican Treasury delivered to us, pursuant to the August 13, 2003
Fiscal Court ruling, a Special VAT Certificate representing the historical claim amount of Ps.
2,111 million. We subsequently filed a complaint seeking to have the amount of the VAT refund
certificate adjusted to reflect inflation and interest from 1997 to the date of issuance, in
accordance with Mexican law. On November 24, 2004, the Federal Court ordered the issuance of the VAT refund certificate to
us including the effects of inflation and interest on the amount originally claimed. This
resolution is final and cannot be appealed to a higher court. The Fiscal Court could not change,
and did not change, the interpretation of the resolution of the Federal Court in its resolution
dated January 26, 2005. The Fiscal Court -79-




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ordered the Mexican Treasury to issue to us a certificate including inflation and interest.
After applying the formula indicated in the resolution, the face value of the certificate would be
Ps. 12,375 million as of December 31, 2004 (approximately $1.1 billion). On February 18, 2005 a favorable written decision of the Fiscal Court carrying out the mandate
of the Federal Court dated November 24, 2004, recognized our legal right to receive not only the
original amount of VAT refund due from the Mexican Government (approximately Ps. 2,111 million),
but also for inflation and interest on that amount since 1997. In its written decision, the Fiscal
Court states that our legal right to receive the fully inflated VAT refund was expressly
established in the Federal Courts prior decision in this case, issued on June 11, 2003. In
implementing the June 11, 2003 and November 24, 2004 Federal Court decisions, the Fiscal Court
ordered the federal tax authorities to make the VAT refund to us through a single certificate
issued in our name, and to refund through that certificate the original amount of the VAT refund
due, adjusted for inflation and interest from the date the tax authorities should have made the
refund in 1997, until the date that the refund certificate is actually delivered to us. The Fiscal
Court also vacated its prior decisions in this matter. We have not yet received the VAT refund
from the federal tax authorities and are currently in discussions
with such tax authorities in relation to these matters. As of December 31, 2004, no gain has been reflected in our financial statements for financial
reporting purposes. 1997 Tax Audit On
January 20, 2004, the SAT issued a provisional attachment of the
VAT refund certificate,
stating that the documents that support the value of the VAT refund certificate do not comply with
applicable tax requirements. In the preliminary findings, the SAT noted that we, . . . wrongfully
declared a VAT receivable for Ps. 2,111 million, which in the Companys opinion refers to expenses
that do not comply with fiscal requirements, and therefore, are not deductible. In our view, TFM
did not prove its VAT claim with corresponding documentation, which incorporates fiscal requisites
as to the identity of the taxpayer, its tax identification code, address of the seller and buyer of
the assets in question, and the VAT shown as separate from the principal . . . and, as a result,
the VAT cannot be credited. We believe the claim has no merits and as of this date, no tax
liability has been levied against us. On March 16, 2005, we were notified by the SAT that it had finished its audit of our 1997 tax
returns. The SAT has not yet assessed any penalties or taxes against us as a result of this audit.
As a part of the conclusion of the audit, the SAT confirmed its provisional attachment of the
original value added tax refund certificate, which had been delivered to us on January 19, 2004. Other Litigation Recent Commercial Lawsuits On December 3, 2004, the Mexican government filed a commercial lawsuit against TFM, Grupo TFM,
Grupo TMM and KCS with a Mexican federal civil court. In the lawsuit, the Mexican government
requested a finding from the court as to whether the defendants had complied with all of their
legal obligations during the process of privatization of our predecessor, FNM. TFM, Grupo TFM and
Grupo TMM appealed the service of process at the federal appeals level. The court initially
refused to accept the claims asserted by the Mexican government, but later agreed to consider the
above claim, although rejecting the Mexican governments request to provisionally attach the VAT
 refund certificate or any other certificate the Federal Treasury may issue in the future. Upon agreeing
to consider the claim, under Mexican law, the court should have had the defendants served a second
time. Nonetheless, the court did not proceed accordingly. TFM, Grupo TFM and Grupo TMM filed
several successful claims alleging -80-




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improper service. The Mexican government appealed the courts findings in favor of TFM, Grupo
TFM and Grupo TMM. Although the appeal continues, the court has undertaken to serve the defendants
for a second time. KCS was also named as a defendant, and was improperly served at the address of
Grupo TMM. All the defendants filed objections to the effect that such notification was invalid on
the grounds that KCS does not have an address in Mexico, and that the Mexican government should
have served KCS at its corporate address in the United States. We believe that this suit is
without merit and that we have fully satisfied our legal obligations relating to the privatization
of TFM. However, there can be no assurance that we or the other defendants will prevail. On November 9, 2004, the Ministry of Transportation announced in the Official Gazette of the
Federation the opening of a public bidding for a concession to operate the Oaxaca-Sur short
lines. We submitted all required documentation for the qualification process in a timely manner yet
were never formally recognized by the Ministry of Transportation as a participant in the bidding
process. On February 18, 2005, we initiated and on April 17, 2005 were able to secure an amparo
prohibiting the Ministry of Transportation from granting the concession to a third party until our
status was reviewed. On May 20, 2005, the Ministry of Transportation notified TFM that it was
officially recognized as a participant in the bidding process. On
July 7, 2005, TFM informed the Ministry of Transportation that
after further consideration it was withdrawing itself from the
bidding process. Disputes with Ferromex Disputes Relating to Payments for the use of Trackage and Haulage Rights and Interline
Services. We and Ferromex have both initiated administrative proceedings seeking a determination
by the Ministry of Transportation of the rates that we should pay each other in connection with the
use of trackage and haulage rights, and interline and terminal services. The Ministry of
Transportation, on March 13, 2002, issued a ruling setting the rates for trackage and haulage
rights, and on August 5, 2002, issued a ruling setting the rates for interline and terminal
services. We and Ferromex appealed both rulings and after three years of proceedings, we obtained,
on April 6, 2005, a ruling from an administrative and tax court declaring both of the Ministry of
Transportations rulings void. We expect that Ferromex will initiate amparoproceedings aimed at
overturning the administrative and tax courts ruling. We believe that even if the rates set in
2002 become effective there will be no material adverse effect on our results of operations. In addition, in April 2004, Ferromex initiated another civil proceeding against us relating to
the payments that we and Ferromex are required to pay each other for the exercise of interline
services. The proceeding is ongoing. On
June 30, 2005, the Federal Court ruled in favor of TFM, in a
civil proceeding initiated by Ferromex in September
2001, by dismissing a claim which had been brought by Ferromex in
which Ferromex sought payment for our exercise of trackage and haulage
rights and interline services. TFM will seek to recover legal costs
and expenses from Ferromex. Disputes Relating to the Exercise of our Trackage Rights to Ferromexs Rail Lines. In July
and October 2001, we initiated administrative proceedings seeking the imposition of sanctions on
Ferromex for violations of our trackage rights on the route from Celaya to Silao, which is the site
of a General Motors plant. These administrative proceedings were followed by judicial proceedings
on our part. In August 2003, we initiated judicial proceedings seeking the imposition of sanctions
on Ferromex for violations of our trackage rights on the route to the Altamira port. In October
2004, we initiated judicial proceedings against the Ministry of Transportation seeking a review of
the July 2004 determination of our trackage rights in Guadalajara. The above proceedings are
ongoing. In August 2002, the Ministry of Transportation issued rulings determining Ferromexs trackage
rights in Monterrey and our trackage rights in Altamira. We and Ferromex both appealed the
Ministry of -81-




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Transportations rulings. At the administrative federal court level, we obtained favorable
rulings in both cases, but we expect that Ferromex will appeal these rulings by initiating amparo
proceedings against us. In July 2003, the Ministry of Transportation issued a ruling in our favor
determining our trackage on the route from Pedro C. Morales to Cerro-la Silla. In response,
Ferromex initiated legal proceedings at the administrative federal court level against the Ministry
of Transportations ruling. The court ruled in our favor and Ferromex in response has filed, as a
last recourse, amparoproceedings. These proceedings are ongoing. Miscellaneous Legal Proceedings Grupo TFMs Dispute with Mexican Governments Put Rights.On January 31, 1997, in connection
with the privatization of our rail lines, Grupo TFM, Grupo TMM, KCS and the Mexican government
entered into the TFM Share Purchase Agreement. Under the TFM Share Purchase Agreement, Grupo TFM
purchased 80% of TFMs capital stock from the Mexican government
and granted a put right to the Mexican
government. Certain disputes have arisen between Grupo TFM and the Mexican government concerning
the procedures surrounding the potential exercise of the Mexican
governments put right. The Mexican government has notified
Grupo TFM of its intention to exercise its put right. Grupo TFM intends to continue to defend its view that the Mexican government has not completed
the steps required to exercise the put right. However, there can be no assurance that Grupo TFM will
prevail or whether, in connection with any resolution of various disputes with the Mexican
government, we will not become involved in such dispute and incur any liabilities in connection
therewith. Arrendadora Internacional, S.A.s claim.In January 2004, Arrendadora Internacional, S.A.(a
company in the process of liquidation), or Arrendadora Internacional, filed a commercial lawsuit
against FNM. FNM requested that we, Ferromex, Ferrosur and the Ministry of Transportation appear in
the trial. Arrendadora Internacional claims that a certain lease agreement between Arrendadora
Internacional and FNM executed in 1996, for the lease of 113 locomotives, was terminated in 2001
and therefore required (i) the return of the leased locomotives, (ii) the payment of rent from
January 2001 to the date the locomotives were returned, and (iii) the payment of any damages caused
to the locomotives. In the process of the privatization, and as explicitly authorized by
Arrendadora Internacional, FNM subleased 70 of those 113 locomotives to us, giving us all rights
and obligations under the lease with Arrendadora Internacional with respect to such locomotives.
FNM subleased the remaining locomotives to Ferromex and Ferrosur. We answered the lawsuit in April
2004. The proceedings are ongoing. We believe that this claim is without merit given that we paid the full price of the
locomotives in 2001 under the terms of the lease with FNM, which in turn paid the full price to
Arrendadora Internacional. If Arrendadora Internacional prevails in their lawsuit and we are forced
to return the locomotives, it would have a material adverse effect on our operations and financial
results. Other.We are a party to various other legal proceedings and administrative actions arising
in the ordinary course of business. Although it is impossible to predict the outcome of any legal
proceeding or administrative action, in managements opinion, such proceedings and actions should
not, either individually or in the aggregate, have a material adverse effect on our financial
condition or results of operations. Dividends Policy: Pursuant to TFMs by-laws, yearly profits, if any, shall be distributed in
the following manner: (i) 10% to a reserve fund for employee participation in profits, (ii) 5% to a
reserve fund, until such reserve fund reaches 20% of TFMs capital stock, (iii) allocations to
additional reserves for specific investments or projects as elected at the shareholders meeting
and (iv) any remaining amounts are distributed as dividends to shareholders pursuant to their
participation. -82-




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B. SIGNIFICANT CHANGES None. 
 ITEM 9.          THE OFFER AND LISTING A. OFFER AND LISTING DETAILS Not applicable. B. PLAN OF DISTRIBUTION Not applicable. C. MARKETS The securities are not traded on any stock exchange or other regulated market. D. SELLING SHAREHOLDERS Not applicable. E. DILUTION Not applicable. F. EXPENSES OF THE ISSUE Not applicable. 
 ITEM 10.          ADDITIONAL INFORMATION A. SHARE CAPITAL Not applicable. B. MEMORANDUM AND ARTICLES OF ASSOCIATION Set forth below is a brief summary of certain significant provisions of the corporate by-laws
of TFM and Grupo TFM and Mexican law. This description does not purport to be complete and is
qualified by reference to the by-laws of TFM and Grupo TFM which have been incorporated by
reference as an exhibit to this report. For a description of the provisions of the by-laws
relating to the Board of Directors, Executive Committee and statutory auditors, see Item 6.
Directors, Senior Management and Employees. TFM Organization and Register TFM was incorporated in Mexico as a sociedad anónima, denominated Ferrocarril del Noreste,
S.A. de C.V., as evidenced by public deed number 50,413, dated November 22, 1996, granted before
Miguel -83-




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Alessio Robles, Notary Public number 19 of Mexico City, recorded in the Public Registry of
Commerce of Monterrey, Mexico under Item 39, Volume 429, Book III, Second Auxiliary of the Commerce
Section. By public deed number 33,385, dated May 6, 1997, granted before Miguel Limón Díaz, Notary
Public number 97 of Mexico City, recorded in the Public Registry of Commerce of Mexico City under
the mercantile volume number 222,305, and in the Public Registry of Commerce of Monterrey, Mexico
under Item 3488, Volume 205-73, Book IV, Third Auxiliary acts and contracts, of the Commerce
Section, TFM, among other things, changed its domicile to Mexico City and its corporate name to
TFM, S.A. de C.V. The duration of TFMs existence is 99 years following the date of its incorporation, which may
be extended one or more times by resolution of TFMs shareholders adopted at an extraordinary
shareholders meeting. Article 5 of TFMs by-laws sets forth the corporate purpose of TFM and authorizes TFM to
engage in, among other things, the construction, administration, operation, exploitation and
maintenance of railway infrastructure, the rendering of public railroad transport service,
auxiliary services necessary therefore, and the carrying out of all acts, transactions, agreements
and operations of any nature as may be necessary or advisable in furtherance of its corporate
purposes. Board of Directors The by-laws provide that the board of directors of TFM shall consist of six directors and
their corresponding alternates. Class I and Class II shareholders elect five directors and their
respective alternates. Class III shareholders elect one director and an alternate. Any individual, whether of Mexican or foreign nationality, may serve as a director of TFM for
one or more terms. Mexican law provides that the compensation of the directors shall be established at the
general shareholders meeting that elected them. Currently, the compensation afforded to the
directors of TFM is limited to one 50-Peso gold coin (centenario) for each attendance at a board of
directors meeting, which amount is to be charged to TFMs general expense account in the
corresponding fiscal year. Mexican law provides that any director who has a conflict of interest in any transaction
involving TFM must announce such conflict to all other directors and abstain from any deliberation
or voting with respect to such transaction. The applicable law further holds any director
breaching such duty responsible for damages caused to TFM. Capital Stock So long as the shares of TFMs capital stock are not listed for trading on any public market,
certain acts, agreements or transactions of TFM require the prior approval of its board of
directors by affirmative vote of a qualified majority of the directors. TFM has two series of outstanding capital stock: Series A Shares and Series B Shares, which
are divided into subseries A-1 and B-1, which represent the minimum fixed capital of TFM, and
subseries A-2 and B-2, which represent the variable portion of the capital stock of TFM, and into
three classes, Class I, Class II and Class III. All of the shares of the capital stock of TFM
currently outstanding are fully paid and non-assessable. Class III Shares can represent up to
20.0% of the total amount of the capital stock. -84-




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Class I Shares and Class II Shares are common, full-voting and nominative shares of the
capital stock, without par value. Class I Shares and Class II Shares are entitled to elect five of
TFMs six directors and their corresponding alternates and to cast one vote per share at each
shareholders meeting. Class III Shares are limited voting and nominative shares of the capital stock, without par
value, and are entitled to cast one vote per share at each shareholders meeting which the holders
of such shares have the right to attend. Class III Shares afford the right to (i) elect one of the
six directors of TFM and a respective alternate, and (ii) vote, together with Class I Shares and
Class II Shares, exclusively on the matters mentioned in article 113 of the General Corporations
Law, and on the following matters, which may only be considered at an extraordinary shareholders
meeting: (a) granting of any kind of guarantees with respect to third party obligations not in the
ordinary course of business; (b) granting of loans to third parties not in the ordinary course of
business; (c) acquisitions not in furtherance of the corporate purposes of TFM and not in the
ordinary course of business, if such acquisitions have an aggregate value of more than $1,000,000;
(d) the cancellation or redemption of the Class III Shares; and (e) cancellation of the
registration of the shares issued by TFM in the National Registry of Securities and Intermediaries
or any other foreign securities exchange. Except as described herein, the holders of Class III
Shares have no voting rights. Class III Shares are not entitled to preferential and accumulative
dividends. All shareholders have a right to receive dividends and any surplus, in the event of
liquidation, in proportion to the number of fully paid shares owned by such shareholder. With
respect to further capital calls made by TFM, shareholder liability is limited to each
shareholders capital contribution. Only shares representative of the variable portion of TFM capital stock may be redeemed,
provided that as a consequence of such redemption, (i) the number of shareholders of TFM is not
less than two or (ii) the amount of capital stock is not reduced to less than the minimum
established by Mexican law. If neither of these prohibitions apply, the shareholder owning shares
representative of the variable portion of the capital stock may redeem all or part of its shares at
the lesser of (a) 95.0% of the value of such shares at the Mexican stock exchange market or (b) the
value of the shares pursuant to the last balance sheet approved by the shareholders. The
reimbursement of the redeemed shares will become due on the day following the date of the next
general ordinary shareholders meeting which approves the financial information of the fiscal year
in which the redemption must take effect, pursuant to the procedure authorized by such shareholders
meeting. Shareholders Meetings Ordinary shareholders meetings require the attendance of holders of at least half the shares
that have the right to attend such meetings, and the favorable vote of holders of a majority of the
shares represented at any such meeting, in a first call, and, in a second or subsequent call, the
affirmative vote of holders of a majority of shares at the meeting, irrespective of the number of
Class I and Class II shares represented at the meeting. Extraordinary shareholders meetings require the attendance of holders of at least 75.0% of
the shares that have the right to attend such meetings, and the affirmative vote of holders of at
least half the shares having such right, in a first call, and in a second or subsequent call, the
attendance and affirmative vote of holders of at least half of the shares having the right to
attend such meetings. An ordinary shareholders meeting must be held annually, or the annual meeting, within the
first four months of any calendar year, to discuss, modify or approve the annual report of the
board of directors, the financial information of TFM as of the end of the preceding fiscal year,
and the annual report of the statutory auditors (comisarios), and to address other items on the
agenda. By law, TFMs fiscal year must begin on January 1 and end on December 31 of each calendar
year. -85-




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Calls for shareholders meetings must be published once in the official newspaper of the
corporate domicile and in a major newspaper of national distribution, at least 15 days in advance.
Calls shall contain the date, time, place and agenda for the proposed meeting and shall be signed
by whoever calls the meeting. So long as shares of TFMs capital stock are not listed for trading
on any stock exchange, calls for shareholders meetings, in addition to the above requirements,
shall be sent in writing, by certified mail or courier, to the addresses of shareholders registered
with the Secretary of TFM. Shareholders may be present or represented by proxy at shareholders meetings. Directors and
statutory auditors of TFM may not represent any shareholder at any shareholders meeting. In order
to attend any meeting, shareholders must obtain an admission card prior to the meeting, by
depositing their share certificates at least two business days prior to the meeting with the
secretary of the board of directors of TFM or with a financial institution in Mexico or abroad.
Such financial institutions must notify TFM (by telegraph or facsimile) of the name of the
depositor, the number of shares deposited and the date on which the deposit was made. Shareholders
that are registered in the shareholder registry book of TFM need not comply with such requirements
to be able to attend shareholders meetings. Limitation on Share Ownership Mexican law and TFMs corporate charter prohibit ownership of Series A Shares by foreign
investors, except for those foreign investors expressly authorized by the National Commission of
Foreign Investments to acquire such shares. Any acquisition of Series A Shares in violation of
this charter provision would be null and void. Mexican and non-Mexican investors may hold Series B
Shares and any other series of shares issued by TFM if authorized by resolution at a shareholders
meeting. Class I Shares must at all times represent 51.0%, Class II Shares, 29.0%, and Class III
Shares 20.0%, of the capital stock of TFM. None of TFMs shares may be acquired by foreign governments or foreign states, and any such
acquisition shall have no effect as of the date thereof. Any foreigner who acquires any interest or participation in the capital stock of TFM will be
considered a Mexican citizen for purposes of Mexican law, with respect to the ownership of such
shares, and TFM (except for the right to own Series A Shares) and will be deemed to understand and
agree that it may not invoke the protection of its own government in connection with its interest
or participation in TFM, under penalty of forfeiture of such interest or participation in favor of
the Mexican government. Any Mexican investor may acquire shares of the capital stock of TFM of any series without
restriction of any kind. Grupo TFM Organization and Register Grupo TFM was incorporated in Mexico as a sociedad de responsabilidad limitada de capital
variable, denominated Transportación Ferroviaria Mexicana, S. de R.L. de C.V.as evidenced by
public deed number 32,732, dated July 12, 1996, granted before Miguel Limón Díaz, Notary Public
number 97 of Mexico City, recorded in the Public Registry of Commerce of Mexico City under the
mercantile volume number 212,314. By public deed number 33,387, dated May 6, 1997, granted before
Miguel Limón Díaz, Notary Public number 97 of Mexico City, recorded in the Public Registry of
Commerce of Mexico City under the mercantile volume number 212,314, Grupo TFM was transformed into
a sociedad anónima, and changed its name to Grupo Transportación Ferroviaria Mexicana, S.A. de
C.V., among other things. -86-




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The duration of Grupo TFMs existence is 99 years following the date of its incorporation,
which may be extended one or more times by resolution of the shareholders of Grupo TFM adopted at
an extraordinary shareholders meeting. Article 5 of Grupo TFMs by-laws sets forth the corporate purpose of Grupo TFM and authorizes
it to engage in, among other things, the constitution, organization and administration of various
types of corporations, in Mexico or abroad, the rendering of public railroad transport service,
auxiliary services necessary for such purpose, and the carrying out of all acts, transactions,
agreements and operations of any nature as may be necessary or convenient in furtherance of its
corporate purposes. Board of Directors The board of directors of Grupo TFM consists of five directors and their corresponding
alternates. Series A shareholders elect four directors and their respective alternates. Series L shareholders elect one director and an alternate. Any individual, whether of Mexican or foreign nationality, may serve as a director of Grupo
TFM for one or more terms. Pursuant to Article 26 of the by-laws of Grupo TFM, the compensation of the directors is
established at the general shareholders meeting at which they are elected. Currently, the
compensation afforded to the directors of Grupo TFM is limited to one 50-Peso gold coin
(centenario) for each attendance at a board of directors meeting, which amount is to be charged to
Grupo TFMs general expense account for the corresponding fiscal year. Mexican law provides that any director who has a conflict of interest in any transaction
involving Grupo TFM must announce such conflict to all other directors and abstain from any
deliberation or voting with respect to such transaction. The applicable law further holds any
director breaching such duty responsible for damages caused to Grupo TFM. Meetings of the board of directors require the attendance of the majority of the directors.
Resolutions require adoption by a majority of the directors . The president of the board of
directors can be appointed by either the board or the shareholders. Capital Stock Grupo
TFM has two classes of outstanding capital stock: Series A
Shares and Series L Shares. All of the shares of the capital stock of Grupo TFM currently outstanding
are fully paid and non-assessable. Series L Shares may represent up to 25.0% of the total amount
of the capital stock of Grupo TFM. Series A Shares are common, full-voting and nominative shares of the
capital stock, without par value. Series L Shares have limited voting rights, without par value,
and may only be representative of the variable portion of the capital stock of Grupo TFM. Series A
Shares are entitled to elect four of Grupo TFMs five directors and their corresponding alternates
and to cast one vote per share at each shareholders meeting. Series L are entitled to elect one
of Grupo TFMs five directors and their corresponding alternates and to cast one vote per share at
each shareholders meeting. Series L Shares are limited voting and nominative shares of the capital stock, without par
value, and are entitled to attend only those shareholder meetings that relate to matters that
holders of such shares are entitled to vote. Series L Shares afford the right to vote, together
with Series A Shares, exclusively on the -87-




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following matters: (a) extension of the corporate life of Grupo TFM; (b) anticipated
dissolution of Grupo TFM; (c) change in Grupo TFMs corporate purpose; (d) change in Grupo TFMs
nationality; (e) change in the form of entity of Grupo TFM; (f) merger or spin-off of Grupo TFM;
and (g) cancellation of shares issued by Grupo TFM with the Special Section of the National
Registry of Securities or any other stock exchange where Series L shares are registered. Except
as described herein, the holders of Series L Shares have no voting rights. Pursuant to Grupo TFMs charter and by-laws, ordinary shareholders meetings require the
attendance of holders of at least 70.0% of the shares that have the right to attend such meetings,
and the affirmative vote of at least 70.0% of the shares entitled to vote at such meetings, in a
first and in second or subsequent calls. Extraordinary shareholders meetings require the attendance of holders of at least 75.0% of
the shares that have the right to attend such meetings, and the affirmative vote of holders of
75.0% of the shares with voting rights, in a first call, and, in a second or subsequent call, the
attendance and affirmative vote of holders of at least the majority of the shares having the right
to attend any such meeting. Extraordinary shareholders meetings called to vote on the matters in which Series L Shares
have voting rights require attendance of holders of at least 75.0% of the shares with voting rights
and a majority of the Series L Shares, and the affirmative vote of the holders of at least 75.0%
of the shares with voting rights and a majority of ordinary shares having full voting rights, in a
first call, and in a second or subsequent call, the attendance and affirmative vote of a majority
of the shares with the right to vote at the meeting and a majority of the shares of Grupo TFM which
have full voting right. So long as the shares of Grupo TFMs capital stock are not listed for trading on any stock
exchange, certain acts, agreements or transactions by Grupo TFM require the prior approval of its
shareholders at an extraordinary meeting where the affirmative vote of a qualified majority of
Grupo TFM shareholders is required. All shareholders have a right to receive dividends and any surplus, in the event of
liquidation, in proportion to the number of fully paid shares owned by such shareholder. With
respect to further capital calls made by Grupo TFM, shareholder liability is limited to each
shareholders capital contribution. Only shares representative of the variable portion of Grupo TFM capital stock may be redeemed,
provided that as a consequence of such redemption, (i) the number of shareholders of Grupo TFM is
not less than two or (ii) the amount of capital stock is not reduced to less than the minimum
established by Mexican law. If neither of these prohibitions apply, the shareholder owning shares
representative of the variable portion of the capital stock may redeem all or part of its shares at
the lesser of (a) 95.0% of the value of such shares at the Mexican stock exchange market or (b) the
value of the shares pursuant to the last balance sheet approved by the shareholders. The
reimbursement of the redeemed shares will become due on the day following the date of the next
general ordinary shareholders meeting which approves the financial information of the fiscal year
in which the redemption must take effect, pursuant to the procedure authorized by such shareholders
meeting. Shareholders Meetings The annual meeting shall occur within the first four months of any calendar year, to discuss,
modify or approve the annual report of the board of directors, the financial information of Grupo
TFM as of the end of the preceding fiscal year, and the annual report
of the comisarios (statutory
auditors). The board will address other items on the agenda. By law, Grupo TFMs fiscal year must
begin on January 1 and end on December 31 of each calendar year. -88-




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Calls for shareholders meetings must be published once in the official newspaper of the
corporate domicile and in a major newspaper of national distribution, at least 15 days in advance.
Calls shall contain the date, time, place and agenda for the proposed meeting and shall be signed
by whoever calls the meeting. So long as shares of Grupo TFMs capital stock are not listed for
trading on any stock exchange, calls for shareholders meetings, in addition to the above
requirements, shall be sent in writing, by certified mail or courier, to the addresses of
shareholders registered with the Secretary of Grupo TFM. Shareholders may be present or represented by proxy at shareholders meetings. Directors and
statutory auditors of Grupo TFM may not represent any shareholder at any shareholders meeting. In
order to attend any meeting of Grupo TFM, shareholders must obtain an admission card prior to the
meeting, by depositing their share certificates at least two business days prior to the meeting
with the secretary of the board of directors of Grupo TFM or with a financial institution in Mexico
or abroad. Such financial institutions must notify Grupo TFM (by telegraph or facsimile) of the
name of the depositor, the number of shares deposited and the date on which the deposit was made.
Shareholders that are registered in the shareholder registry book of Grupo TFM need not comply with
such requirements to be able to attend shareholders meetings. Limitation on Share Ownership Mexican and non-Mexican investors may hold Series A Shares and any other series of shares
issued by Grupo TFM if authorized by resolution at a shareholders meeting. Series L Shares must
represent up to 25.0% of the capital stock of Grupo TFM. None of Grupo TFMs shares may be acquired by foreign governments or foreign states, and any
such acquisition shall have no effect as of the date thereof. Any foreigner who acquires any interest or participation in the capital stock of Grupo TFM
will be considered a Mexican citizen for purposes of Mexican law, with respect to the ownership of
such shares, and Grupo TFM and will be deemed to understand and agree that it may not invoke the
protection of its own government in connection with its interest or participation in Grupo TFM,
under penalty of forfeiture of such interest or participation in favor of the Mexican government.
Any Mexican investor may acquire shares of the capital stock of Grupo TFM of any series without
restriction of any kind. C. MATERIAL CONTRACTS See Item 7. Major Shareholders and Related Party TransactionsRelated Party Transactions
and Item 5. Operating and Financial Review and ProspectsLiquidity and Capital
ResourcesContractual Obligations for a summary description of our material contracts, other than
contracts entered into in the ordinary of course of business. D. EXCHANGE CONTROLS There are currently no exchange controls in Mexico, however, Mexico has imposed foreign
exchange controls in the past. Pursuant to the provisions of NAFTA, if Mexico experiences serious
balance of payment difficulties or the threat thereof in the future, Mexico would have the right to
impose foreign exchange controls on investments made in Mexico, including those made by U.S. and
Canadian investors. E. TAXATION Not Applicable. -89-




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F. DIVIDEND AND PAYING AGENTS Not applicable. G. STATEMENT BY EXPERTS Not applicable. H. DOCUMENTS ON DISPLAY The documents concerning TFM and Grupo TFM that are referred to in this annual report may be
inspected at their offices at Av. Periférico Sur No. 4829, 4to Piso, Col. Parques del Pedregal,
México, D.F. 14010, México. I. SUBSIDIARY INFORMATION Not applicable. 
 ITEM 11.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We periodically review our exposure to risks arising from fluctuations in interest rates,
foreign exchange and fuel prices and determine at the senior management level how to manage these
risks. We do not have a derivatives trading portfolio. We do not enter into market-risk sensitive
instruments for speculative purposes. See Note 10 to our financial statements. Interest Rate Risk We are subject to interest rate risk principally with respect to our debt that bears interest
at floating rates. The following table sets forth TFMs principal and interest cash flows and
related weighted average interest rates by expected maturity date of its long-term debt as of
December 31, 2004: Fixed Rate
    
    
    Variable RateMaturity
    
    Debt(1)
    
    
    Debt(2)(in thousands of Dollars)2005
    
    $
    
    
    
    $
    66,3762006
    
    
    
    
    
    
    67,3092007
    
    
    150,000
    
    
    
    2008
    
    
    
    
    
    
    Thereafter
    
    $
    623,500
    
    
    $
    Total
    
    $
    773,500
    
    
    $
    133,685Fair Value
    
    $
    821,266
    
    
    $
    133,685
 
 (1)
    
    Includes $150.0 million principal amount of the 2007 Senior Notes at the annual
interest rate of 10.25%, $443.5 million principal amount of the 2009 Debentures at the annual
rate of 11.75% and $180.0 million principal amount of the 2012 Senior Notes at the annual
interest rate of 12.50%. All of the outstanding 2009 Debentures were either repurchased or
redeemed with the proceeds of the offering of the 9 3/8% Notes.(2)
    
    Under the amended term loan facility the weighted average interest rate as of
December 31, 2004 was approximately 4.05% for the US Dollar portion due 2005 and 4.69% for the
Dollar portion due 2006 and 10.0% for the Peso portion due 2005 and
10.59% for the Peso
portion due 2006. -90-




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Interest Rate Agreements In the past, we have entered into certain types of interest rate contracts to manage our
interest rate risk. In the future, we may use interest rate forward contracts to offset changes in
the rates received on short term floating rate assets to manage our risk with respect to interest
rates in Mexico and the U.S. We currently have no such contracts in effect. Foreign Exchange Risks The purpose of our foreign currency hedging activities is to limit the risks arising from
Peso-denominated monetary assets and liabilities. Our management determines the nature and
quantity of any hedging transactions, based upon net assets exposure and market conditions. At December 31, 2004, we had monetary assets and liabilities denominated in Pesos of
Ps.1,057.0 million and Ps.290.0 million, respectively. At December 31, 2003, we had monetary
assets and liabilities denominated in Pesos of Ps.1,325.0 million and Ps.261.0 million,
respectively. At December 31, 2002, we had monetary assets and liabilities denominated in Pesos of
Ps.1,292.0 million and Ps.414.0 million, respectively. At December 31, 2004, 2003 and 2002, the
Reuters interbank market Peso-Dollar exchange rate was Ps.11.14, Ps.11.23 and Ps.10.45 per Dollar,
respectively. Fuel Price Risks We may seek to increase the predictability of our operating expenses by purchasing U.S. fuel
futures contracts, which are accounted for as hedging transactions used to offset fuel price risk.
We did not acquire any fuel future contracts during 2004. As of December 31, 2003, we had no fuel
futures contracts outstanding. As of December 31, 2002, we had ten swap contracts outstanding for
5,000,083 gallons of fuel, which expired in January and February 2003. The realized gain was $1.5
million and we recorded a benefit of $1.0 million at December 31, 2002 and recorded the remaining
benefit of $0.5 million in 2003. As a result of the fuel swap contracts acquired during 2003, the
realized gain was $0.8 million. 
 ITEM 12.          DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 
 PART II 
 ITEM 13.          DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES We did not meet certain required maintenance covenants regarding financial ratios under our
bank credit facilities for each of the three quarters ended September 30, 2003, December 31, 2003
and March 31, 2004. Accordingly, we sought and received waivers from the lenders under our bank
credit facilities for such non-compliance. See Item 5. Operating and Financial Review and
ProspectsLiquidity and Capital ResourcesContractual Obligations. 
 ITEM 14.          MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS On April 1, 2005, we commenced a cash tender offer and a concurrent consent solicitation for
any and all of our outstanding 2009 Debentures. On April 20, 2005, we accepted for purchase
tenders equal to -91-




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approximately $386.0 million principal amount of the 2009 Debentures. The tender offer
expired on April 28, 2005. Concurrently with the tender offer, we solicited consents for
amendments to the indenture under which the 2009 Debentures were issued. The consent solicitation
expired on April 14, 2005. We received the requisite consents to amend the indenture for the 2009
Debentures and thereby eliminated substantially all of the restrictive covenants included therein
and reduced the minimum prior notice period with respect to a redemption date for outstanding 2009
Debentures from 30 days to 3 days. We called for redemption the outstanding 2009 Debentures that
were not tendered in the tender offer and on April 29, 2005, paid an aggregate of $59,970,989.47,
including principal and interest, to such holders of the 2009 Debentures. There are currently no
2009 Debentures outstanding. E.          USE OF PROCEEDS Not applicable. 
 ITEM 15.          CONTROLS AND PROCEDURES As of the end of the period covered by this annual report, we conducted an evaluation, under
the supervision and with the participation of our management, including our principal executive and
principal financial officers, pursuant to Rule 13a-15 promulgated under the Exchange Act, of the
effectiveness of the design and operation of our disclosure controls and procedures. Based on this
evaluation, our principal executive and principal financial officers concluded that as of the
evaluation date, such disclosure controls and procedures were effective in ensuring that the
information required to be disclosed by us in reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC. There has been no change in our internal control over financial reporting that occurred during
the period covered by this annual report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. 
 ITEM 16A.          AUDIT COMMITTEE FINANCIAL EXPERT We are not required to have an audit committee nor an audit committee financial expert
because none of our securities are listed on a securities exchange or otherwise quoted in the
United States. Nonetheless, TFM has an audit committee as disclosed in Item 6. Directors, Senior
Management and EmployeesBoard PracticesAudit Committee. 
 ITEM 16B.          CODE OF ETHICS TFM
has adopted a written code of ethics that applies to all of TFMs employees, including our
Chief Executive Officer, Chief Financial Officer and principal
accounting officer. TFM has
previously filed a copy of the code of ethics as Exhibit 11.1 to our annual report for the year
ended December 31, 2003. No amendments have been made nor have any waivers been granted to the code of ethics since its
adoption that applies to the persons indicated above. Grupo
TFM has not adopted a code of ethics due to the fact that it is a
holding company with no material assets or operations other than its
investment in TFM and related party transactions with TFM which are
eliminated in the consolidation of Grupo TFMs financial
statements. The executive officers of Grupo TFM, by virtue of the
fact that they also serve as officers of TFM, are subject to
TFMs code of ethics. -92-




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ITEM 16C.          PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table presents the aggregate fees for professional audit services and other
services rendered by PricewaterhouseCoopers, S.C., independent accountants to TFM and Grupo TFM for
the years ended December 31, 2003 and 2004. Year Ended December 31,2003
    
    
    2004(in thousands of U.S. Dollars)Audit fees(1)
    
    $
    206.8
    
    
    $
    109.6Audit-related fees(2)
    
    
    
    
    
    
    109.1Tax fees(3)
    
    
    17.7
    
    
    
    All other fees(4)
    
    
    
    
    
    
    115.5Total
    
    $
    224.5
    
    
    $
    334.2
 
 (1)
    
    Audit fees include fees for services performed by the independent accountants
for the audit or review of financial statements. Audit fees also include fees for services
provided by the independent accountants in connection with statutory and regulatory filings or
engagements, comfort letters, statutory audits, attest services, consents and assistance with
and review of documents filed with the SEC.(2)
    
    Audit-related fees include fees for employee benefit plan audits, accounting
consultations and audits in connection with internal control reviews, attest services that are
not required by statute or regulation and consultation concerning financial accounting and
reporting standards.(3)
    
    Tax fees include fees for tax compliance, tax planning and tax advice. Tax
compliance generally involves preparation of original and amended tax returns, claims for
refund and tax payment-planning services. Tax planning and tax advice encompass assistance
with tax audits and appeals, employee benefit plans and requests for rulings or technical
advice from taxing authorities.(4)
    
    Fees for consulting services relating to compliance with the Sarbanes-Oxley Act of
2002. Each of TFMs and Grupo TFMs board of directors pre-approves annually specific audit and
non-audit services that may be performed by PricewaterhouseCoopers, S.C., as well as the budgeted
fee levels for each of these services. PricewaterhouseCoopers, S.C., periodically provides a
report to each of TFMs and Grupo TFMs board of directors in order for each of TFMs and Grupo
TFMs board of directors to review the services that PricewaterhouseCoopers, S.C., is providing, as
well as the status and cost of those services. 
 ITEM 16D.          EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 
 ITEM 16E.          PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable. 
 PART III 
 ITEM 17.          FINANCIAL STATEMENTS Not applicable.
 -93-




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ITEM 18.          FINANCIAL STATEMENTS 
 See
pages F-1 through F-83. ITEM 19.          EXHIBITS Documents filed as exhibits to this report. Exhibit No.1.1
    
    Unofficial English language
translation of the corporate by-laws (Estatutos Sociales) of
TFM, S.A. de C.V., as amended.1.2
    
    Unofficial English language
translation of the corporate by-laws (Estatutos Sociales) of Grupo TFM, S.A. de C.V., as amended.2.1
    
    Indenture, dated as of June 16, 1997, among TFM, S.A. de C.V., Grupo TFM, S.A.
de C.V., The Bank of New York, as trustee, and Bankers Trust Luxembourg, S.A., as a
paying agent, relating to $150,000,000 of 10.25% Senior Notes due 2007 of TFM, S.A. de
C.V.(incorporated herein by reference to Exhibit 4.1 of our registration statement on
Form F-4, File No. 333-08322).2.2
    
    First Supplemental Indenture, dated as of May 21, 2002, TFM, S.A. de C.V.,
Grupo TFM, S.A. de C.V., as guarantor, The Bank of New York, as trustee, and Deutsche
Bank Luxembourg S.A., as the paying agent, to the Indenture, dated June 16, 1997
(incorporated herein by reference to Exhibit 2.2 of our annual report on Form 20-F for
fiscal year 2002).2.3
    
    Indenture, dated as of June 13, 2002, between TFM, S.A. de C.V.and The Bank of
New York, as trustee, relating to $180,000,000 of 12.50% Senior Notes due 2012 of TFM,
S.A. de C.V.(incorporated herein by reference to Exhibit 4.3 of our registration
statement on Form F-4, File No. 333-102222).2.4
    
    Indenture, dated as of April 19, 2005, between TFM, S.A. de C.V.and The Bank
of Nova Scotia Trust Company of New York, as trustee and paying agent relating to
$460,000,000 of 9 3/8% Notes due 2012 of TFM, S.A. de C.V.(incorporated herein by
reference to Exhibit 4.2 of our Form 8-K filed on April 25, 2004).2.5
    
    Registration Rights Agreement, dated April 19, 2005, among TFM, S.A. de C.V.
and the placement agents engaged in the offering of the 9 3/8% Notes de 2012 of TFM,
S.A. de C.V.(incorporated herein by reference to Exhibit 4.1 of our Form 8-K filed on
April 25, 2004).4.1
    
    Concession title granted by the Secretaría de Comunicaciones y Transportes
(Ministry of Transportation) in favor of Ferrocarril del Noreste, S.A. de C.V., dated
December 2, 1996, together with an English translation (incorporated herein by
reference to Exhibit 2.1 of our Registration Statement on Form F-4, File No.
333-08322).4.2
    
    Amendment, dated February 12, 2001, of Concession title granted by Ministry of
Transportation in favor of TFM, December 2, 1996, together with an English translation
(incorporated herein by reference to Exhibit 4.2 from TFM and Grupo TFMs annual report
on Form 20-F for fiscal year 2000).
 -94-




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Exhibit No.4.3
    
    Sale Purchase Agreement, dated January 31, 1997, among the United Mexican
States (represented by the Mexican Treasury), FNM (acknowledged by the Mexican
Communication and Transportation Ministry) as sellers, and Grupo TFM (f/k/a
Transportación Ferroviaria Mexicana, S. de R.L. de C.V.), as buyer, relating to the
capital stock of Ferrocarril del Noreste, S.A. de C.V.(incorporated herein by
reference to Exhibit 2.2 of our registration statement on Form F-4, File No.
333-08322).4.4
    
    Amendment to Sale Purchase Agreement, dated as of June 9, 1997, to the Sale
Purchase Agreement, dated January 31, 1997, among the United Mexican States
(represented by the Mexican Treasury), Grupo TFM, Grupo TMM (f/k/a Transportación
Marítima Mexicana, S.A. de C.V.) and KCS (f/k/a Kansas City Southern Industries, Inc.),
with the appearance of the Ministry of Transportation.4.5
    
    First Amended and Restated Credit Agreement, dated as of June 24, 2004, among
TFM, as borrower, JPMorgan Chase Bank, as administrative agent and the banks named
therein.4.6
    
    First Waiver and Amendment to the Credit Agreement, dated as of April 18, 2005,
among TFM, several banks party thereto and JPMorgan Chase Bank, N.A. (f/k/a JPMorgan
Chase Bank), as administrative agent.4.7
    
    Stock Purchase Agreement, dated as of August 16, 2004, among Grupo TMM, TFM and
Kansas City.4.8
    
    Amended and Restated Acquisition Agreement, dated December 15, 2004, among
Kansas City, Kara Sub, Inc., KCS Investment I, Ltd., KCS Acquisition Subsidiary, Inc.,
Caymex Transportation, Inc., Grupo TMM, TMM Holdings, S.A. de C.V., TMM Multimodal,
S.A. de C.V. and Grupo TFM amending and restating the Stock Purchase Agreement, dated
April 15, 2003.8.1
    
    List of subsidiaries of Grupo TFM and TFM.11.1
    
    Unofficial English language translation of TFMs Code of Ethics (incorporated herein by reference
to Exhibit 11.1 to our annual report on Form 20-F for fiscal year 2003).12.1
    
    Certification of the principal executive officer of TFM and Grupo TFM required
under Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes Oxley
Act of 2002.12.2
    
    Certification of the principal financial officer of TFM and Grupo TFM required
under Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes Oxley
Act of 2002.13.1
    
    Certification of principal executive officer and principal financial officer of
TFM and Grupo TFM, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
   -95-




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SIGNATURES The registrants hereby certify that they meet all of the requirements for filing on Form 20-F
and that they have duly caused and authorized the undersigned to sign this annual report on their
behalf. TFM, S.A. DE C.V.By:

/s/
Paul J. WeyandtName:
    Paul J. WeyandtTitle:
    Interim Chief Financial Officer GRUPO TRANSPORTACIÓN FERROVIARIA 
MEXICANA, S.A. DE C.V.By:

/s/
Paul J. WeyandtName:
    Paul J. WeyandtTitle:
    Interim Chief Financial Officer Date: July 15, 2005 -96-




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INDEX TFM, S.A. DE C.V. COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2003 AND 2004 Contents
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Combined and Consolidated Statements of Income
    
    
    F-4Combined and Consolidated Statements of Changes in Stockholders Equity
    
    
    F-5Combined and Consolidated Statements of Cash Flows
    
    
    F-6Notes to the Combined and Consolidated Financial Statements
    
    F-7 to F-40
 GRUPO TRANSPORTACIÓN FERROVIARIA
MEXICANA, S.A. DE C.V.

COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004 Contents
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    F-42Consolidated Balance Sheets
    
    
    F-43Combined
and Consolidated Statements of Income
    
    
    F-44Combined and Consolidated Statements of Changes in Stockholders Equity
    
    
    F-45Combined and Consolidated Statements of Cash Flows
    
    
    F-46Notes to the Combined and Consolidated Financial Statements
    
    F-47 to F-83
 F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
























F-2



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TFM, S. A. DE C. V.





CONSOLIDATED BALANCE SHEETS


(Note 1)


|                                                                            |                                                                                                      |                                            |                   |         |           |           |           |         |           |           | 
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | 
|                                                                            |                                                                                                      | December 31,                               |                  
|                                                                            |                                                                                                      |                                            |                  
|                                                                            |                                                                                                      | 2003                                       |                   |         | 2004      |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      | (amounts in thousands                      |                  
|                                                                            |                                                                                                      | of US dollars)                             |                  
|ASSETS                                                                     
|Current assets:                                                             |                                                                                                      |                                            |                   |         |           |           |           |        
|                                                                            | Cash and cash equivalents                                                                            |                                            | $                 | 3,569   |           |           | $         | 14,218  |          
|                                                                            | Accounts receivable Net of allowance for doubtful accounts
    of $3,921 in 2003 and $3,871 in 2004 |                                            |                   | 101,595 |           |           |           | 106,014 |          
|                                                                            | Amounts due from related parties (Note 11)                                                           |                                            |                   | 1,550   |           |           |           | 31,569  |          
|                                                                            | Taxes recoverable (Note 3)                                                                           |                                            |                   | 51,244  |           |           |           | 41,902  |          
|                                                                            | Other accounts receivablenet (Note 4)                                                               |                                            |                   | 34,046  |           |           |           | 30,155  |          
|                                                                            | Materials and supplies (Note 5)                                                                      |                                            |                   | 16,693  |           |           |           | 21,738  |          
|                                                                            | Other current assets (Note 6)                                                                        |                                            |                   | 13,090  |           |           |           | 7,036   |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      | Total current assets                       |                   |         | 221,787   |           |           |         | 252,632   |          
|Long-term account receivable                                                |                                                                                                      |                                            | 1,350             |         |           |           | 1,233     |        
|Concession rights and related assets Net (Note 7)                          |                                                                                                      |                                            | 1,124,182         |         |           |           | 1,082,034 |        
|Property, machinery and equipment Net (Note 8)                             |                                                                                                      |                                            | 632,431           |         |           |           | 558,669   |        
|Long-term receivable from Grupo TFM (Note 11)                               |                                                                                                      |                                            | 661,116           |         |           |           | 661,122   |        
|Investment held in associate company (Note 2a)                              |                                                                                                      |                                            | 8,020             |         |           |           | 8,061     |        
|Intangible assets                                                           |                                                                                                      |                                            | 1,163             |         |           |           | 678       |        
|Deposits                                                                    |                                                                                                      |                                            | 411               |         |           |           | 4,324     |        
|Deferred income taxes (Note 16)                                             |                                                                                                      |                                            | 73,833            |         |           |           | 95,942    |        
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      | Total assets                               |                   | $       | 2,724,293 |           |           | $       | 2,664,695 |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY                                       
|Short-term liabilities:                                                     |                                                                                                      |                                            |                   |         |           |           |           |        
|                                                                            | Current portion of long-term debt (Note 9)                                                           |                                            | $                 | 196,652 |           |           | $         | 68,835  |          
|                                                                            | Current portion of capital lease obligations (Note 17)                                               |                                            |                   | 414     |           |           |           | 373     |          
|                                                                            | Amounts owed to related parties (Note 11)                                                            |                                            |                   | 6,150   |           |           |           | 3,907   |          
|                                                                            | Suppliers                                                                                            |                                            |                   | 76,902  |           |           |           | 57,169  |          
|                                                                            | Advance payments from customers                                                                      |                                            |                   | 5,809   |           |           |           | 3,859   |          
|                                                                            | Accounts payable                                                                                     |                                            |                   | 32,812  |           |           |           | 44,847  |          
|                                                                            | Provision and accrued expenses                                                                       |                                            |                   | 38,079  |           |           |           | 30,704  |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      | Total short-term liabilities               |                   |         | 356,818   |           |           |         | 209,694   |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|Long-term portion of capital lease obligations (Note 17)                    |                                                                                                      |                                            | 1,556             |         |           |           | 1,255     |        
|Long-term debt (Note 9)                                                     |                                                                                                      |                                            | 745,189           |         |           |           | 816,659   |        
|Other long-term liabilities (Note 13)                                       |                                                                                                      |                                            | 33,724            |         |           |           | 25,204    |        
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      | Total long-term liabilities                |                   |         | 780,469   |           |           |         | 843,118   |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      |                                            | Total liabilities |         |           | 1,137,287 |           |         |           | 1,052,812 | 
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|Minority interest (Note 2o)                                                 |                                                                                                      |                                            | (466              | )       |           |           | (935      | )      
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|Stockholders equity (Note 14):                                             |                                                                                                      |                                            |                   |         |           |           |           |        
|Common stock, 1,383,987,505 shares authorized, issued
    without par value |                                                                                                      |                                            | 1,758,882         |         |           |           | 1,758,882 |        
|Treasury shares                                                             |                                                                                                      |                                            | (256,130          | )       |           |           | (256,130  | )      
|Effect on purchase of subsidiary shares                                     |                                                                                                      |                                            | (41,952           | )       |           |           | (41,952   | )      
|Retained earnings                                                           |                                                                                                      |                                            | 126,672           |         |           |           | 152,018   |        
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      | Total stockholders equity                 |                   |         | 1,587,472 |           |           |         | 1,612,818 |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          
|                                                                            |                                                                                                      | Total liabilities and stockholders equity |                   | $       | 2,724,293 |           |           | $       | 2,664,695 |          
|                                                                            |                                                                                                      |                                            |                   |         |           |          

The accompanying notes are an integral part of these
consolidated financial statements.


F-3



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##### Table of Contents



TFM, S. A. DE C. V.





COMBINED AND CONSOLIDATED STATEMENTS OF INCOME


(Note 1)


|                                                                           |                                       |                                      |           |         |      |   |           |         |  |   |           |         | 
|-------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------ | --------- | ------- | ---- | - | --------- | ------- |  | - | --------- | ------- | 
|                                                                           |                                       | Year ended December 31,              |          
|                                                                           |                                       |                                      |          
|                                                                           |                                       | 2002                                 |           |         | 2003 |   |           | 2004    | 
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|                                                                           |                                       | (amounts in thousands of US dollars, |          
|                                                                           |                                       | except per share amounts)            |          
|Transportation revenues                                                    |                                       | $                                    | 712,140   |         |      | $ | 698,528   |         |  | $ | 699,224   |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Costs and expenses:                                                        |                                       |                                      |           |         |      |   |           |         |  |   |           |        
|                                                                           | Salaries, wages and employee benefits |                                      |           | 124,413 |      |   |           | 121,762 |  |   |           | 117,386 | 
|                                                                           | Purchased services                    |                                      |           | 163,835 |      |   |           | 155,594 |  |   |           | 150,421 | 
|                                                                           | Fuel, material and supplies           |                                      |           | 58,594  |      |   |           | 71,843  |  |   |           | 89,381  | 
|                                                                           | Other costs                           |                                      |           | 129,428 |      |   |           | 130,769 |  |   |           | 127,792 | 
|                                                                           | Depreciation and amortization         |                                      |           | 81,401  |      |   |           | 85,403  |  |   |           | 87,225  | 
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|                                                                           |                                       |                                      | 557,671   |         |      |   | 565,371   |         |  |   | 572,205   |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Income on transportation                                                   |                                       |                                      | 154,469   |         |      |   | 133,157   |         |  |   | 127,019   |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Other expenses Net (Note 15)                                              |                                       |                                      | (20,883   | )       |      |   | (35,883   | )       |  |   | (6,438    | )      
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Operating income                                                           |                                       |                                      | 133,586   |         |      |   | 97,274    |         |  |   | 120,581   |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Interest income                                                            |                                       |                                      | 4,974     |         |      |   | 1,509     |         |  |   | 514       |        
|Interest expense                                                           |                                       |                                      | (101,722  | )       |      |   | (112,641  | )       |  |   | (111,973  | )      
|Exchange (loss) gain Net                                                  |                                       |                                      | (17,508   | )       |      |   | (13,744   | )       |  |   | 435       |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Net financing cost                                                         |                                       |                                      | (114,256  | )       |      |   | (124,876  | )       |  |   | (111,024  | )      
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Equity earnings in associates (Note 2a)                                    |                                       |                                      | 1,269     |         |      |   | 282       |         |  |   | 41        |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Income (loss) before provision for income taxes and minority
    interest  |                                       |                                      | 20,599    |         |      |   | (27,320   | )       |  |   | 9,598     |        
|Current and deferred income tax (Note 16)                                  |                                       |                                      | (32,033   | )       |      |   | (34,107   | )       |  |   | 15,279    |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|(Loss) income before minority interest                                     |                                       |                                      | (11,434   | )       |      |   | (61,427   | )       |  |   | 24,877    |        
|Minority interest                                                          |                                       |                                      | 84        |         |      |   | 383       |         |  |   | 469       |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Net (loss) income for the year                                             |                                       | $                                    | (11,350   | )       |      | $ | (61,044   | )       |  | $ | 25,346    |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Net (loss) income for the year per share (basic and diluted)
    (Note 2p) |                                       | $                                    | (0.0082   | )       |      | $ | (0.0441   | )       |  | $ | 0.0183    |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 
|Weighted average shares outstanding                                        |                                       |                                      | 1,383,987 |         |      |   | 1,383,987 |         |  |   | 1,383,987 |        
|                                                                           |                                       |                                      |           |         |      |   |           |         | 

The accompanying notes are an integral part of these combined
and consolidated financial statements.


F-4



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##### Table of Contents



TFM, S. A. DE C. V.





COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES


IN STOCKHOLDERS EQUITY FOR THE YEARS ENDED


DECEMBER 31, 2002, 2003 AND 2004


(Notes 1 and 8)


|                                        |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       |         |   |  |   |           |  
|--------------------------------------- |  | ------------------------------------ | --------- |  | -------- | ----------- | -------- | ---------- |  | - | -------- | - |  | ----- | ------- | - |  | - | --------- | -
|                                        |  |                                      |           |  |          | Effect on   |          |            |  |   |         
|                                        |  |                                      |           |  |          | purchase of |          |            |  |   |         
|                                        |  | Common                               |           |  | Treasury |             |          | subsidiary |  |   | Retained |   |  |      
|                                        |  | Stock                                |           |  | shares   |             |          | shares     |  |   | earnings |   |  | Total |        
|                                        |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       |        
|                                        |  | (amounts in thousands of US dollars) |          
|Balance at December 31, 2001            |  | $                                    | 1,758,882 |  |          |             |          |            |  | $ | 22,390   |   |  | $     | 198,691 |   |  | $ | 1,979,963 |  
|Effect on purchase of subsidiary shares |  |                                      |           |  |          |             |          |            |  |   | (64,342  | ) |  |       | 375     |   |  |   | (63,967   | )
|Treasury shares                         |  |                                      |           |  |          | $           | (256,130 | )          |  |   |          |   |  |       |         |   |  |   | (256,130  | )
|Net loss for the year                   |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       | (11,350 | ) |  |   | (11,350   | )
|                                        |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       |        
|Balance at December 31, 2002            |  |                                      | 1,758,882 |  |          |             | (256,130 | )          |  |   | (41,952  | ) |  |       | 187,716 |   |  |   | 1,648,516 |  
|Net loss for the year                   |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       | (61,044 | ) |  |   | (61,044   | )
|                                        |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       |        
|Balance at December 31, 2003            |  |                                      | 1,758,882 |  |          |             | (256,130 | )          |  |   | (41,952  | ) |  |       | 126,672 |   |  |   | 1,587,472 |  
|Net income for the year                 |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       | 25,346  |   |  |   | 25,346    |  
|                                        |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       |        
|Balance at December 31, 2004            |  | $                                    | 1,758,882 |  |          | $           | (256,130 | )          |  | $ | (41,952  | ) |  | $     | 152,018 |   |  | $ | 1,612,818 |  
|                                        |  |                                      |           |  |          |             |          |            |  |   |          |   |  |       |        

The accompanying notes are an integral part of these combined
and consolidated financial statements.


F-5



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##### Table of Contents



TFM, S. A. DE C. V.


COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS


(Note 1)


|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |         |         |         |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | ------- | ------- | -
|                                                    |                                                                                       | Year ended December 31,                                                                                    |                                                   
|                                                    |                                                                                       |                                                                                                            |                                                   
|                                                    |                                                                                       | 2002                                                                                                       |                                                    |          | 2003   |         |         | 2004    |       
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|                                                    |                                                                                       | (amounts in thousands                                                                                      |                                                   
|                                                    |                                                                                       | of US dollars)                                                                                             |                                                   
|Cash flows from operating activities:               |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |        
|                                                    | Net (loss) income for the year                                                        |                                                                                                            | $                                                  | (11,350  | )      |         | $       | (61,044 | )      |         | $       | 25,346  |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|                                                    | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |         |        
|                                                    |                                                                                       | Depreciation and amortization                                                                              |                                                    |          | 81,401 |         |         |         | 85,403 |         |         |         | 87,225  |        
|                                                    |                                                                                       | Amortization of discount on senior unsecured debentures and
    commercial paper                           |                                                    |          | 23,158 |         |         |         | 370    |         |         |         | 47      |        
|                                                    |                                                                                       | Income tax and deferred income tax expense (benefit)                                                       |                                                    |          | 32,033 |         |         |         | 34,107 |         |         |         | (15,279 | )      
|                                                    |                                                                                       | Minority interest                                                                                          |                                                    |          | (84    | )       |         |         | (383   | )       |         |         | (469    | )      
|                                                    |                                                                                       | Loss on sale of property, machinery and equipment and write off
    of cost of property and machinery Net |                                                    |          | 6,897  |         |         |         | 2,909  |         |         |         | 3,704   |        
|                                                    |                                                                                       | Gain on sale of Mexrails shares including the call option                                                 |                                                    |          |        |         |         |         |        |         |         |         | 7,355   |        
|                                                    |                                                                                       | Changes in other assets and liabilities:                                                                   |                                                    |          |        |         |         |         |        |         |         |         |         |        
|                                                    |                                                                                       |                                                                                                            | Accounts receivable                                |          |        | 12,621  |         |         |        | (10,999 | )       |         |         | (12,399 | )
|                                                    |                                                                                       |                                                                                                            | Long-term receivable from Grupo TFM                |          |        | (203    | )       |         |        | 361     |         |         |         | (6      | )
|                                                    |                                                                                       |                                                                                                            | Other accounts receivable                          |          |        | (36,915 | )       |         |        | 21,338  |         |         |         | 7,680   |  
|                                                    |                                                                                       |                                                                                                            | Materials and supplies                             |          |        | 3,068   |         |         |        | 3,568   |         |         |         | (5,696  | )
|                                                    |                                                                                       |                                                                                                            | Other current assets                               |          |        | (2,170  | )       |         |        | (957    | )       |         |         | (5,792  | )
|                                                    |                                                                                       |                                                                                                            | Amounts due to related parties                     |          |        | 8,311   |         |         |        | 741     |         |         |         | (14,217 | )
|                                                    |                                                                                       |                                                                                                            | Accounts payable and accrued expenses              |          |        | 13,814  |         |         |        | 27,180  |         |         |         | (3,911  | )
|                                                    |                                                                                       |                                                                                                            | Other non-current assets and long-term liabilities |          |        | (5,331  | )       |         |        | (2,930  | )       |         |         | 12,105  |  
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|                                                    |                                                                                       |                                                                                                            | Total adjustments                                  |          |        | 136,600 |         |         |        | 160,708 |         |         |         | 60,347  |  
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|Net cash provided by operating activities           |                                                                                       |                                                                                                            | 125,250                                            |          |        |         | 99,664  |         |        |         | 85,693  |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|Cash flows from investing activities:               |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |        
|                                                    | Proceeds from sale of Mexrailss shares net of cash                                   |                                                                                                            |                                                    |          |        |         |         |         |        |         |         | 27,147  |        
|                                                    | Investment in Mexrail, Inc.                                                           |                                                                                                            |                                                    | (44,000  | )      |         |         |         |        |         |         |         |        
|                                                    | Sale of property, machinery and equipment                                             |                                                                                                            |                                                    | 642      |        |         |         | 2,390   |        |         |         | 420     |        
|                                                    | Acquisition of property, machinery and equipment                                      |                                                                                                            |                                                    | (89,355  | )      |         |         | (73,121 | )      |         |         | (41,143 | )      
|                                                    | Acquisition of treasury shares                                                        |                                                                                                            |                                                    | (162,575 | )      |         |         |         |        |         |         |         |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|                                                    | Net cash used in investing activities                                                 |                                                                                                            |                                                    | (295,288 | )      |         |         | (70,731 | )      |         |         | (13,576 | )      
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|Cash flows from financing activities:               |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |        
|                                                    | Payments under commercial paper                                                       |                                                                                                            |                                                    | (340,000 | )      |         |         | (37,001 | )      |         |         | (10,000 | )      
|                                                    | Proceeds from commercial paper                                                        |                                                                                                            |                                                    | 196,738  |        |         |         |         |        |         |         | 20,000  |        
|                                                    | Proceeds from senior notes                                                            |                                                                                                            |                                                    | 175,241  |        |         |         |         |        |         |         |         |        
|                                                    | Proceeds from term loan facility                                                      |                                                                                                            |                                                    | 128,000  |        |         |         |         |        |         |         |         |        
|                                                    | Principal payment of term loan facility                                               |                                                                                                            |                                                    |          |        |         |         | (18,286 | )      |         |         | (71,129 | )      
|                                                    | Principal payments under capital lease obligations                                    |                                                                                                            |                                                    | (298     | )      |         |         | (298    | )      |         |         | (339    | )      
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|Net cash provided by (used in) financing activities |                                                                                       |                                                                                                            | 159,681                                            |          |        |         | (55,585 | )       |        |         | (61,468 | )      
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|(Decrease) increase in cash and cash equivalents    |                                                                                       |                                                                                                            | (10,357                                            | )        |        |         | (26,652 | )       |        |         | 10,649  |        
|Cash and cash equivalents:                          |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |        
|                                                    | Beginning of the year                                                                 |                                                                                                            |                                                    | 40,578   |        |         |         | 30,221  |        |         |         | 3,569   |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|                                                    | End of the year                                                                       |                                                                                                            | $                                                  | 30,221   |        |         | $       | 3,569   |        |         | $       | 14,218  |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|Supplemental information:                           |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |        
|                                                    | Cash paid during the year for interest                                                |                                                                                                            | $                                                  | 58,525   |        |         | $       | 98,626  |        |         | $       | 97,604  |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|Non cash transactions:                              |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |        |         |         |        
|                                                    | Due from Mexican Government                                                           |                                                                                                            | $                                                  | 93,555   |        |         |         |         |        |         |         |         |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|                                                    | Due from related parties                                                              |                                                                                                            | $                                                  | 20,000   |        |         |         |         |        |         |         |         |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       
|                                                    | Assets acquired through capital lease obligation                                      |                                                                                                            |                                                    |          |        |         | $       | 120     |        |         |         |         |        
|                                                    |                                                                                       |                                                                                                            |                                                    |          |        |         |         |         |       

The accompanying notes are an integral part of these combined
and consolidated financial statements.


F-6



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##### Table of Contents



TFM, S. A. DE C. V.





NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS


YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004


(amounts in thousands of US dollars ($) or thousands


of pesos (Ps ), except number of shares)


NOTE 1THE COMPANY:




















F-7



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)






NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:






| |                     
| | --------------------
| | a.     Consolidation







| |             
| | ------------
| | Subsidiaries











| |           
| | ----------
| | Associates



F-8



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)










| |                   
| | ------------------
| | b.     Translation







| |                                     
| | ------------------------------------
| | c.     Cash and cash
    equivalents





| |                               
| | ------------------------------
| | d.     Accounts
    receivable









|   |                       
|-- | ----------------------
|e. | Materials and supplies



F-9



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|   |                                     
|-- | ------------------------------------
|f. | Concession rights and related assets







| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) The tangible assets acquired pursuant to the asset
    purchase agreement, consisting of locomotives, rail cars and
    materials and supplies;
|
| | (ii) The rights to utilize the right of way, track
    structure, buildings and related maintenance facilities of the
    TFM lines;               
|
| | (iii) The 25% equity interest in the company established to
    operate the Mexico City rail terminal facilities; and                              
|
| | (iv) Finance lease obligations assumed.                                                                                                            



|   |                                  
|-- | ---------------------------------
|g. | Property, machinery and equipment









|   |                    
|-- | -------------------
|h. | Deferred income tax









|   |                                    
|-- | -----------------------------------
|i. | Employees statutory profit sharing



F-10



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|   |           
|-- | ----------
|j. | Borrowings





|   |                   
|-- | ------------------
|k. | Seniority premiums







|   |                    
|-- | -------------------
|l. | Revenue recognition





|   |                                        
|-- | ---------------------------------------
|m. | Intangible assets and long-lived assets





|   |       
|-- | ------
|n. | Leases





F-11



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|   |                  
|-- | -----------------
|o. | Minority interest





|   |                            
|-- | ---------------------------
|p. | Net income (loss) per share





| |                            
| | ---------------------------
| | q.     Use of
    estimates





| |                  
| | -----------------
| | r.     Provisions







| |                         
| | ------------------------
| | s.     Share
    capital







| |                                                        
| | -------------------------------------------------------
| | t.     Financial instruments
    and hedging activities







F-12



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)












| |                
| | ---------------
| | u.     Segments





| |                                     
| | ------------------------------------
| | v.     Financial risk
    management



| |                               
| | ------------------------------
| | (i)     Financial risk factors





| |                               
| | ------------------------------
| | (ii)     Foreign exchange risk







| |                             
| | ----------------------------
| | (iii)     Interest-rate risk





| |                               
| | ------------------------------
| | (iv)     Concentration of risk



F-13



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




| |                         
| | ------------------------
| | w.     Reclassifications





| |                                         
| | ----------------------------------------
| | v.     New accounting
    pronouncements











































F-14



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


NOTE 3 TAXES RECOVERABLE:




|                                                |  |              |        |  |      |   |        | 
|----------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                                |  | December 31, |       
|                                                |  |              |       
|                                                |  | 2003         |        |  | 2004 |  
|                                                |  |              |        |  |      |  
|Special tax on production and services          |  | $            | 31,000 |  |      | $ | 27,700 | 
|Withholding tax (Car Hire)                      |  |              | 4,917  |  |      |   | 4,957  | 
|Payroll taxes                                   |  |              | 5,013  |  |      |   | 5,064  | 
|Withholding tax on the sale of Mexrails shares |  |              |        |  |      |   | 3,268  | 
|Value added tax Net                            |  |              | 9,884  |  |      |   | 83     | 
|Other                                           |  |              | 430    |  |      |   | 830    | 
|                                                |  |              |        |  |      |  
|                                                |  | $            | 51,244 |  |      | $ | 41,902 | 
|                                                |  |              |        |  |      |  

NOTE 4 OTHER ACCOUNTS RECEIVABLE
NET:


|                              |  |              |        |  |      |   |        | 
|----------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                              |  | December 31, |       
|                              |  |              |       
|                              |  | 2003         |        |  | 2004 |  
|                              |  |              |        |  |      |  
|Services to foreign Railroads |  | $            | 12,786 |  |      | $ | 12,150 | 
|Car repairs                   |  |              | 4,842  |  |      |   | 8,701  | 
|Insurance claims              |  |              | 9,794  |  |      |   | 3,670  | 
|Helm financial Corporation    |  |              | 2,100  |  |      |   | 3,600  | 
|Employees Union               |  |              | 828    |  |      |   | 682    | 
|Other                         |  |              | 3,696  |  |      |   | 1,352  | 
|                              |  |              |        |  |      |  
|                              |  | $            | 34,046 |  |      | $ | 30,155 | 
|                              |  |              |        |  |      |  

NOTE 5 MATERIALS AND SUPPLIES:


|                      |  |              |        |   |      |   |        |  
|--------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                      |  | December 31, |       
|                      |  |              |       
|                      |  | 2003         |        |   | 2004 |  
|                      |  |              |        |   |      |  
|General inventory     |  | $            | 15,742 |   |      | $ | 19,994 |  
|Locomotive fuel stock |  |              | 1,810  |   |      |   | 2,603  |  
|Inventory reserve     |  |              | (859   | ) |      |   | (859   | )
|                      |  |              |        |   |      |  
|                      |  | $            | 16,693 |   |      | $ | 21,738 |  
|                      |  |              |        |   |      |  

NOTE 6 OTHER CURRENT ASSETS:


|                           |  |              |        |  |      |   |       | 
|-------------------------- |  | ------------ | ------ |  | ---- | - | ----- | 
|                           |  | December 31, |       
|                           |  |              |       
|                           |  | 2003         |        |  | 2004 |  
|                           |  |              |        |  |      |  
|Prepaid expenses           |  | $            | 4,815  |  |      | $ | 3,413 | 
|Advance to suppliers       |  |              | 5,602  |  |      |   | 1,623 | 
|Prepaid insurance premiums |  |              | 2,673  |  |      |   | 2,000 | 
|                           |  |              |        |  |      |  
|                           |  | $            | 13,090 |  |      | $ | 7,036 | 
|                           |  |              |        |  |      |  

F-15



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


NOTE 7 CONCESSION RIGHTS AND RELATED
ASSETS:








|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |           |  |  |  |       | 
|---------------------- |  | ------------ | --------- |  | --------- | - | ----------- | ------------ |  | --------- | ------------ |  |  | ----- | --------- |  |  |  | ----- | 
|                       |  | 2004         |          
|                       |  |              |          
|                       |  | Balance at   |           |  |           |   | Balance at  |              |  |          
|                       |  | beginning of |           |  |           |   | end of      |              |  |          
|                       |  | yearnet of  |           |  |           |   | yearnet of |              |  | Estimated |             
|                       |  | accumulated  |           |  |           |   | accumulated |              |  | useful    |             
|                       |  | amortization |           |  | Disposals |   |             | Amortization |  |           | amortization |  |  | lives |          
|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |          
|Land                   |  | $            | 115,105   |  |           |   |             |              |  | $         | 2,648        |  |  | $     | 112,457   |  |  |  | 50    | 
|Buildings              |  |              | 25,516    |  |           |   |             |              |  |           | 1,162        |  |  |       | 24,354    |  |  |  | 27-30 | 
|Bridges                |  |              | 63,433    |  |           |   |             |              |  |           | 1,822        |  |  |       | 61,611    |  |  |  | 41    | 
|Tunnels                |  |              | 78,621    |  |           |   |             |              |  |           | 2,358        |  |  |       | 76,263    |  |  |  | 40    | 
|Rail                   |  |              | 232,617   |  |           | $ | 550         |              |  |           | 10,294       |  |  |       | 221,773   |  |  |  | 29    | 
|Concrete and wood ties |  |              | 95,331    |  |           |   | 725         |              |  |           | 4,757        |  |  |       | 89,849    |  |  |  | 27    | 
|Yards                  |  |              | 86,587    |  |           |   |             |              |  |           | 2,996        |  |  |       | 83,591    |  |  |  | 35    | 
|Ballast                |  |              | 77,589    |  |           |   | 2,393       |              |  |           | 3,891        |  |  |       | 71,305    |  |  |  | 27    | 
|Grading                |  |              | 338,082   |  |           |   |             |              |  |           | 7,779        |  |  |       | 330,303   |  |  |  | 50    | 
|Culverts               |  |              | 10,244    |  |           |   |             |              |  |           | 718          |  |  |       | 9,526     |  |  |  | 21    | 
|Signals                |  |              | 1,057     |  |           |   |             |              |  |           | 55           |  |  |       | 1,002     |  |  |  | 26    | 
|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |          
|                       |  | $            | 1,124,182 |  |           | $ | 3,668       |              |  | $         | 38,480       |  |  | $     | 1,082,034 |  |  |  |       | 
|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |          

F-16



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |           |  |  |  |       | 
|---------------------- |  | ------------ | --------- |  | --------- | - | ----------- | ------------ |  | --------- | ------------ |  |  | ----- | --------- |  |  |  | ----- | 
|                       |  | 2003         |          
|                       |  |              |          
|                       |  | Balance at   |           |  |           |   | Balance at  |              |  |          
|                       |  | beginning of |           |  |           |   | end of      |              |  |          
|                       |  | yearnet of  |           |  |           |   | yearnet of |              |  | Estimated |             
|                       |  | accumulated  |           |  |           |   | accumulated |              |  | useful    |             
|                       |  | amortization |           |  | Disposals |   |             | Amortization |  |           | amortization |  |  | lives |          
|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |          
|Land                   |  | $            | 117,753   |  |           |   |             |              |  | $         | 2,648        |  |  | $     | 115,105   |  |  |  | 50    | 
|Buildings              |  |              | 26,678    |  |           |   |             |              |  |           | 1,162        |  |  |       | 25,516    |  |  |  | 27-30 | 
|Bridges                |  |              | 65,255    |  |           |   |             |              |  |           | 1,822        |  |  |       | 63,433    |  |  |  | 41    | 
|Tunnels                |  |              | 80,979    |  |           |   |             |              |  |           | 2,358        |  |  |       | 78,621    |  |  |  | 40    | 
|Rail                   |  |              | 242,997   |  |           |   |             |              |  |           | 10,380       |  |  |       | 232,617   |  |  |  | 29    | 
|Concrete and wood ties |  |              | 100,592   |  |           |   |             |              |  |           | 5,261        |  |  |       | 95,331    |  |  |  | 27    | 
|Yards                  |  |              | 89,582    |  |           |   |             |              |  |           | 2,995        |  |  |       | 86,587    |  |  |  | 35    | 
|Ballast                |  |              | 82,516    |  |           |   | 200         |              |  |           | 4,727        |  |  |       | 77,589    |  |  |  | 27    | 
|Grading                |  |              | 345,861   |  |           |   |             |              |  |           | 7,779        |  |  |       | 338,082   |  |  |  | 50    | 
|Culverts               |  |              | 10,962    |  |           |   |             |              |  |           | 718          |  |  |       | 10,244    |  |  |  | 21    | 
|Signals                |  |              | 1,112     |  |           |   |             |              |  |           | 55           |  |  |       | 1,057     |  |  |  | 26    | 
|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |          
|                       |  | $            | 1,164,287 |  |           | $ | 200         |              |  | $         | 39,905       |  |  | $     | 1,124,182 |  |  |  |       | 
|                       |  |              |           |  |           |   |             |              |  |           |              |  |  |       |          





NOTE 8 PROPERTY, MACHINERY AND
EQUIPMENT:




F-17



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|                             |  |              |         |  |           |   |            |           |  |           |            |              |  |         |            |   |              |       |        |              |  |   |         |  |  |   |         |  |  |  |       | 
|---------------------------- |  | ------------ | ------- |  | --------- | - | ---------- | --------- |  | --------- | ---------- | ------------ |  | ------- | ---------- | - | ------------ | ----- | ------ | ------------ |  | - | ------- |  |  | - | ------- |  |  |  | ----- | 
|                             |  | 2004         |        
|                             |  |              |        
|                             |  | Balance at   |         |  |           |   | Balance at |           |  |          
|                             |  | beginning of |         |  |           |   | end of     |           |  | Estimated |           
|                             |  | year net of |         |  |           |   | Fixed(1)   |           |  |           |            | year net of |  |         | useful     |  
|                             |  | accumulated  |         |  |           |   | Transfer   |           |  | asset     |            |              |  |         | accumulate |   |              | lives |       
|                             |  | depreciation |         |  | Additions |   |            | Disposals |  |           | and others |              |  | Mexrail |            |   | Depreciation |       |        | depreciation |  |   | (years) | 
|                             |  |              |         |  |           |   |            |           |  |           |            |              |  |         |            |   |              |       |        |              |  |   |         | 
|Locomotives                  |  | $            | 100,035 |  |           |   |            |           |  |           |            |              |  |         |            |   |              | $     | 153    |              |  | $ | 11,610  |  |  | $ | 88,272  |  |  |  | 14    | 
|Freight cars                 |  |              | 57,402  |  |           |   |            |           |  | $         | 84         |              |  | $       | 395        |   |              |       | 2,685  |              |  |   | 4,679   |  |  |   | 50,349  |  |  |  | 12-16 | 
|Machinery of workshop        |  |              | 5,448   |  |           | $ | 28         |           |  |           |            |              |  |         |            |   |              |       | 81     |              |  |   | 1,948   |  |  |   | 3,447   |  |  |  | 8     | 
|Machinery of road            |  |              | 20,190  |  |           |   | 57         |           |  |           | 3          |              |  |         | 4,824      |   |              |       | 357    |              |  |   | 2,139   |  |  |   | 22,572  |  |  |  | 14    | 
|Terminal and other equipment |  |              | 49,361  |  |           |   | 1,312      |           |  |           | 1,129      |              |  |         | 6,965      |   |              |       | 4,974  |              |  |   | 4,103   |  |  |   | 47,432  |  |  |  | 1-15  | 
|Track improvement            |  |              | 276,003 |  |           |   | 12,554     |           |  |           |            |              |  |         | 17,514     |   |              |       | 36,672 |              |  |   | 10,833  |  |  |   | 258,566 |  |  |  | 15-48 | 
|Buildings                    |  |              | 5,977   |  |           |   | 30         |           |  |           |            |              |  |         | (95        | ) |              |       | 845    |              |  |   | 191     |  |  |   | 4,876   |  |  |  | 20    | 
|Overhaul                     |  |              | 44,807  |  |           |   | 7,241      |           |  |           |            |              |  |         |            |   |              |       |        |              |  |   | 11,368  |  |  |   | 40,680  |  |  |  | 8     | 
|                             |  |              |         |  |           |   |            |           |  |           |            |              |  |         |            |   |              |       |        |              |  |   |         | 
|                             |  |              | 559,223 |  |           |   | 21,222     |           |  |           | 1,216      |              |  |         | 29,603     |   |              |       | 45,767 |              |  |   | 46,871  |  |  |   | 516,194 |  |  |  |       | 
|Land(2)                      |  |              | 37,427  |  |           |   | 25         |           |  |           |            |              |  |         |            |   |              |       | 10,545 |              |  |   |         |  |  |   | 26,907  |  |  |  |       | 
|Construction in progress     |  |              | 35,781  |  |           |   | 19,896     |           |  |           |            |              |  |         | (29,603    | ) |              |       | 10,506 |              |  |   |         |  |  |   | 15,568  |  |  |  |       | 
|                             |  |              |         |  |           |   |            |           |  |           |            |              |  |         |            |   |              |       |        |              |  |   |         | 
|                             |  | $            | 632,431 |  |           | $ | 41,143     |           |  | $         | 1,216      |              |  | $       |           |   |              | $     | 66,818 |              |  | $ | 46,871  |  |  | $ | 558,669 |  |  |  |       | 
|                             |  |              |         |  |           |   |            |           |  |           |            |              |  |         |            |   |              |       |        |              |  |   |         | 






|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|(1) | Effect of deconsolidation of Mexrail as a result of sale to KCS
    (see Note 1)                
|(2) | Includes land under finance lease amounting to $3.0 and $3.0 in
    2003 and 2004, respectively.

|                             |  |              |         |  |           |   |              |           |  |           |            |            |  |              |         |   |              |   |        |         |  |   |         |  |  |  |       | 
|---------------------------- |  | ------------ | ------- |  | --------- | - | ------------ | --------- |  | --------- | ---------- | ---------- |  | ------------ | ------- | - | ------------ | - | ------ | ------- |  | - | ------- |  |  |  | ----- | 
|                             |  | 2003         |        
|                             |  |              |        
|                             |  | Balance at   |         |  |           |   | Balance at   |           |  |          
|                             |  | beginning of |         |  |           |   | end of       |           |  | Estimated |           
|                             |  | year net of |         |  |           |   | year net of |           |  | useful    |           
|                             |  | accumulated  |         |  |           |   | Transfer     |           |  |           |            | accumulate |  |              | lives   |  
|                             |  | depreciation |         |  | Additions |   |              | Disposals |  |           | and others |            |  | Depreciation |         |   | depreciation |   |        | (years) | 
|                             |  |              |         |  |           |   |              |           |  |           |            |            |  |              |         |   |              |   |        |         | 
|Locomotives                  |  | $            | 111,644 |  |           |   |              |           |  |           |            |            |  |              |         |   |              | $ | 11,609 |         |  | $ | 100,035 |  |  |  | 14    | 
|Freight cars                 |  |              | 66,023  |  |           | $ | 122          |           |  | $         | 3,356      |            |  |              |         |   |              |   | 5,387  |         |  |   | 57,402  |  |  |  | 12-16 | 
|Machinery of workshop        |  |              | 7,000   |  |           |   | 5            |           |  |           |            |            |  | $            | 387     |   |              |   | 1,944  |         |  |   | 5,448   |  |  |  | 8     | 
|Machinery of road            |  |              | 21,712  |  |           |   | 310          |           |  |           |            |            |  |              | 78      |   |              |   | 1,910  |         |  |   | 20,190  |  |  |  | 14    | 
|Terminal and other equipment |  |              | 35,528  |  |           |   | 1,212        |           |  |           | 177        |            |  |              | 17,951  |   |              |   | 5,153  |         |  |   | 49,361  |  |  |  | 1-15  | 
|Track improvement            |  |              | 234,769 |  |           |   | 27,391       |           |  |           |            |            |  |              | 22,939  |   |              |   | 9,096  |         |  |   | 276,003 |  |  |  | 15-48 | 
|Buildings                    |  |              | 5,368   |  |           |   | 820          |           |  |           | 34         |            |  |              |         |   |              |   | 177    |         |  |   | 5,977   |  |  |  | 20    | 
|Overhaul                     |  |              | 45,246  |  |           |   | 9,758        |           |  |           |            |            |  |              |         |   |              |   | 10,197 |         |  |   | 44,807  |  |  |  | 8     | 
|                             |  |              |         |  |           |   |              |           |  |           |            |            |  |              |         |   |              |   |        |         | 
|                             |  |              | 527,290 |  |           |   | 39,618       |           |  |           | 3,567      |            |  |              | 41,355  |   |              |   | 45,473 |         |  |   | 559,223 |  |  |  |       | 
|Land                         |  |              | 37,607  |  |           |   | 18           |           |  |           | 198        |            |  |              |         |   |              |   |        |         |  |   | 37,427  |  |  |  |       | 
|Construction in progress     |  |              | 44,470  |  |           |   | 33,485       |           |  |           |            |            |  |              | (42,174 | ) |              |   |        |         |  |   | 35,781  |  |  |  |       | 
|                             |  |              |         |  |           |   |              |           |  |           |            |            |  |              |         |   |              |   |        |         | 
|                             |  | $            | 609,367 |  |           | $ | 73,121       |           |  | $         | 3,765      |            |  | $            | (819    | ) |              | $ | 45,473 |         |  | $ | 632,431 |  |  |  |       | 
|                             |  |              |         |  |           |   |              |           |  |           |            |            |  |              |         |   |              |   |        |         | 





F-18



---



##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


NOTE 9 FINANCING:




|                                   |                                                    |              |         |         |            |   |         |         | 
|---------------------------------- | -------------------------------------------------- | ------------ | ------- | ------- | ---------- | - | ------- | ------- | 
|                                   |                                                    | December 31, |        
|                                   |                                                    |              |        
|                                   |                                                    | 2003         |         |         | 2004       |  
|                                   |                                                    |              |         |         |            |  
|                                   |                                                    | Net          |         |         | Net        |  
|                                   |                                                    | Borrowings   |         |         | Borrowings |  
|                                   |                                                    |              |         |         |            |  
|Short-term debt:                   |                                                    |              |         |         |            |   |         |        
|                                   | Commercial
    paper(1)                            |              | $       | 84,407  |            |   |         |         | 
|Current portion of long-term debt: |                                                    |              |         |         |            |   |         |        
|                                   | First Amended and Restated Credit
    Agreement(3) |              |         |         |            |   | $       | 64,762  | 
|                                   | Term loan
    facility(2)                          |              |         | 108,333 |            |   |         |         | 
|                                   | Interest payable                                   |              |         | 3,912   |            |   |         | 4,073   | 
|                                   |                                                    |              |         |         |            |  
|                                   |                                                    | $            | 196,652 |         |            | $ | 68,835  |        
|                                   |                                                    |              |         |         |            |  
|Long-term debt:                    |                                                    |              |         |         |            |   |         |        
|                                   | Senior notes due
    2007(4)                       |              | $       | 150,000 |            |   | $       | 150,000 | 
|                                   | Senior discount
    debentures(5)                  |              |         | 437,254 |            |   |         | 438,598 | 
|                                   | Senior notes due
    2012(6)                       |              |         | 157,935 |            |   |         | 161,824 | 
|                                   | First Amended and Restated Credit
    Agreement(3) |              |         |         |            |   |         | 66,237  | 
|                                   |                                                    |              |         |         |            |  
|                                   |                                                    | $            | 745,189 |         |            | $ | 816,659 |        
|                                   |                                                    |              |         |         |            |  






|    |                 
|--- | ----------------
|(1) | Commercial paper

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The commercial paper program consists of a two-year facility in
    the amount of $122,000, which is supported by a letter of credit
    issued under the bank facility. The commercial paper facility
    allows the Company to draw-down advances from time to time,
    subject to certain terms and conditions. The obligations of the
    commercial paper facility rank at least pari passu with the
    other senior unsecured indebtedness. The average interest rate
    for the years ended December 31, 2003 and 2004 was 1.28%
    and 1.17%, respectively. This facility has been refinanced into
    the First Amended and Restated Credit Agreement due
    2006. See (3) for refinancing.

|    |                   
|--- | ------------------
|(2) | Term loan facility

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The term loan facility is a four-year term loan in the amount of
    $128,000. The term loan is payable in semi-annual installments
    beginning in September 2003 and ending in September 2006 and
    bearing interest at Libor plus applicable margin. The
    obligations of the term loan facility rank at least pari passu
    with the other senior unsecured indebtedness. The average
    interest rate for the year ended December 31, 2003 and 2004
    was 3.97% and 3.78%, respectively. See (3) for refinancing.

|    |                                                     
|--- | ----------------------------------------------------
|(3) | First Amended and Restated Credit Agreement due 2006

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 24, 2004 the Company concluded negotiating with its
    lender for the amendments to the Term Loan and also the
    refinancing of its Commercial Paper Program to extend the final
    maturity date to September 17, 2006. Under the amendment,
    both facilities are comprised under one single term loan named
    First Amended and Restated Credit Agreement (FARCA). Amounts
    outstanding under the FARCA facility are secured by a first
    priority conditional pledge on the locomotives and other rolling
    stock owned by Arrendadora TFM.
| | The (FARCA) is a two year term loan in the amount of
    $186,429 ($162,570 in US dollar and $23,858 in Pesos). The
    dollar loan as well as the peso loan shall be payable in
    consecutive semi-annual installments beginning in September 2004
    and ending in September 2006 and bearing interest at Libor plus
    applicable margin. The obligations of the FARCA rank at least
    pari passu with the other senior unsecured indebtedness.                                                                                                              
| | The average interest rate for the year ended December 31,
    2004 was 4.42% for the US dollar portion and 9.96% for peso
    portion.                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Interest expense related with the FARCA amounted to $4,285, for
    the year ended December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|    |                      
|--- | ---------------------
|(4) | Senior notes due 2007

| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In June 1997, the Company issued US dollar denominated
    securities bearing interest semiannually at a fixed rate of
    10.25% and maturing on June 15, 2007.
| | Interest expense related with the senior notes amounted $16,167
    for each one of the years ended December 31, 2002, 2003 and
    2004.                       



(footnotes continued on following page)


F-19



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|    |                                   
|--- | ----------------------------------
|(5) | Senior discount debentures (SDD)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The US dollar denominated SDD were sold in June 1997, at a
    substantial discount from their principal amount of $443,501,
    and no interest was payable thereon prior to June 15, 2002.
    The SDD will mature on June 15, 2009. The SDD yield 11.75%
    fixed rate at semiannual specified date an accreted value,
    computed on the basis of semiannual compounding and maturing on
    June 15, 2002. Interest on the SDD is payable semiannually
    at a fixed rate of 11.75%, commencing on December 15, 2002.
    The SDD are redeemable at the option of the Company, in whole or
    in part, at any time on or after June 15, 2002, at a
    certain redemption price of 100% starting on June 15, 2004
    from and thereafter (expressed in percentages of principal
    amount at maturity), plus accrued and unpaid interest,
    if any.
| | Interest expense related with the SDD amounted $53,406, $54,796
    and $54,796 during 2002, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|    |                      
|--- | ---------------------
|(6) | Senior notes due 2012

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2002 TFM completed a solicitation of consents of holders of
    10.25% Senior Notes due 2007 and 11.75% SDD due 2009 senior
    notes and its debentures to an amendment providing for certain
    changes to the Limitation on Restricted Payments,
    Limitation on Indebtedness, and Limitation on
    Liens covenants in each of the indentures pursuant to
    which the securities were issued. TFM obtained the requisite
    consents and paid a fee of $16,972 to allow it to issue
    additional $180,000 in new debt and to purchase the call options
    shares in Grupo TFM held by the Government (see Note 14).
| | In June, 2002, TFM issued senior notes for an aggregate
    principal amount of $180,000. The senior notes are denominated
    in dollars, bear interest semi-annually at a fixed rate of
    12.50% and mature on June 15, 2012. The senior notes are
    redeemable at TFMs option on or after June 15, 2007
    and, subject to certain limitations. The senior notes were
    issued at a discount of $2.5 million, which is being
    amortized based on the interest method over its term.                                                                                                                                        
| | The Company incurred and accounted for as transaction costs
    $25.1 million in consent and professional services fees in
    connection with the issuance of these notes and is being
    amortized based on the interest method over the term of the
    senior notes.                                                                                                                                                                                                                                                                                                                                                                
| | Interest expense related with the senior notes due 2012 amounted
    to $23,659, for the year ended December 31, 2003 and 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          





| |          
| | ---------
| | Covenants





|                    |  |              |         |  |            |   |         | 
|------------------- |  | ------------ | ------- |  | ---------- | - | ------- | 
|                    |  | December 31, |        
|                    |  |              |        
|                    |  | 2003         |         |  | 2004       |  
|                    |  |              |         |  |            |  
|                    |  | Net          |         |  | Net        |  
|                    |  | Borrowings   |         |  | Borrowings |  
|                    |  |              |         |  |            |  
|2006                |  |              |         |  |            | $ | 66,237  | 
|2007                |  | $            | 150,000 |  |            |   | 150,000 | 
|2008                |  |              |         |  |            |   |         | 
|2009                |  |              | 595,189 |  |            |   | 438,598 | 
|2010 and thereafter |  |              |         |  |            |   | 161,824 | 
|                    |  |              |         |  |            |  
|                    |  | $            | 745,189 |  |            | $ | 816,659 | 
|                    |  |              |         |  |            |  

NOTE 10FINANCIAL INSTRUMENTS:




| |                    
| | -------------------
| | Fuel swap contracts





F-20



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)






| |                           
| | --------------------------
| | Foreign exchange contracts

















| |                                    
| | -----------------------------------
| | Fair value of financial instruments







| |                          
| | -------------------------
| | Foreign currency balances



F-21



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


NOTE 11 BALANCES AND TRANSACTIONS WITH RELATED
PARTIES:


|                            |                                                              |              |       |       |      |   |        |        | 
|--------------------------- | ------------------------------------------------------------ | ------------ | ----- | ----- | ---- | - | ------ | ------ | 
|                            |                                                              | December 31, |      
|                            |                                                              |              |      
|                            |                                                              | 2003         |       |       | 2004 |  
|                            |                                                              |              |       |       |      |  
|Accounts
    receivable:(1) |                                                              |              |       |       |      |   |        |       
|                            | Terminal Ferroviaria del Valle de México, S. A. de C.
    V. |              | $     | 1,550 |      |   |        |        | 
|                            | KCS-receivable related to
    Mexrail(2)                     |              |       |       |      |   | $      | 31,398 | 
|                            | Other Grupo TMMs subsidiaries                               |              |       |       |      |   |        | 171    | 
|                            |                                                              |              |       |       |      |  
|                            |                                                              | $            | 1,550 |       |      | $ | 31,569 |       
|                            |                                                              |              |       |       |      |  
|Accounts
    payable:(1)    |                                                              |              |       |       |      |   |        |       
|                            | KCS                                                          |              | $     | 4,345 |      |   | $      | 746    | 
|                            | Terminal Ferroviaria del Valle de México, S. A. de C.
    V. |              |       |       |      |   |        | 3,068  | 
|                            | Other Grupo TMMs subsidiaries                               |              |       | 1,805 |      |   |        |        | 
|                            | Tex-Mex Railway                                              |              |       |       |      |   |        | 93     | 
|                            |                                                              |              |       |       |      |  
|                            |                                                              | $            | 6,150 |       |      | $ | 3,907  |       
|                            |                                                              |              |       |       |      |  






|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The accounts receivable and payable due from or due to related
    parties were driven by the services disclosed in the
    transactions with related parties.
|(2) | Account receivable related to the remaining 49% interest in
    Mexrail including the value of the call option.                                               



|                           |  |                         |        |   |      |   |        |      |  |   |         |  
|-------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                           |  | Year ended December 31, |       
|                           |  |                         |       
|                           |  | 2002                    |        |   | 2003 |   |        | 2004 | 
|                           |  |                         |        |   |      |   |        |      | 
|Transportation revenues    |  | $                       | 10,375 |   |      | $ | 13,784 |      |  | $ | 8,148   |  
|                           |  |                         |        |   |      |   |        |      | 
|Terminal service           |  | $                       | (9,933 | ) |      | $ | (8,605 | )    |  | $ | (10,713 | )
|                           |  |                         |        |   |      |   |        |      | 
|Car lease                  |  | $                       | (1,947 | ) |      | $ | (2,256 | )    |  | $ | (2,482  | )
|                           |  |                         |        |   |      |   |        |      | 
|Locomotive and car repair  |  | $                       | (49    | ) |      | $ | 8      |      |  | $ | 123     |  
|                           |  |                         |        |   |      |   |        |      | 
|Management
    fee(a)      |  | $                       | (2,500 | ) |      | $ | (2,500 | )    |  | $ | (2,500  | )
|                           |  |                         |        |   |      |   |        |      | 
|Locomotive equipment lease |  | $                       | (1,834 | ) |      | $ | 2,127  |      |  | $ | 3,638   |  
|                           |  |                         |        |   |      |   |        |      | 
|Other                      |  | $                       | 295    |   |      | $ | 299    |      |  | $ | 448     |  
|                           |  |                         |        |   |      |   |        |      | 






| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The principal services sold by TFM were general freight and
    locomotive equipment lease and the principal services received
    by TFM were terminal services, car hire and management services.
    These services are usually negotiation with related parties on a
    cost-plus basis.

Grupo TMM management services agreement




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company and Grupo TMM entered into a management services
    agreement pursuant to which Grupo TMM provides certain
    consulting and management services to the Company commencing May
    1997 for a term of 12 months and which may be renewed for
    additional one-year periods by agreement of the parties. Under
    the terms of the agreement, Grupo TMM is to be reimbursed for
    its costs and expenses incurred in the performance of such
    services.



|    |                                                                       
|--- | ----------------------------------------------------------------------
|(a) | KCS Transportation Company (KCSTC)
    management services agreement



F-22



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)






| |           
| | ----------
| | Amendments





| |                               
| | ------------------------------
| | Transactions with shareholders



|    |                                       
|--- | --------------------------------------
|(b) | Association in Participation Agreement











|    |                          
|--- | -------------------------
|(c) | Intercompany transactions



F-23



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


NOTE 12 PROVISION AND ACCRUED EXPENSES:




| |           
| | ----------
| | Provisions

|                                         |                         |               |       |         |            |   |       |         |   |   |       |         |  
|---------------------------------------- | ----------------------- | ------------- | ----- | ------- | ---------- | - | ----- | ------- | - | - | ----- | ------- | -
|                                         |                         | Insurance     |       |         |            |   |      
|                                         |                         | claims from   |       |         |            |   |      
|                                         |                         | customers for |       |         |            |   |      
|                                         |                         | merchandise   |       |         |            |   |      
|                                         |                         | damages       |       |         |            |   |      
|                                         |                         | during the    |       |         | Other      |   |       |        
|                                         |                         | freight       |       |         | provisions |   |       | Total   |  
|                                         |                         |               |       |         |            |   |       |         |  
|At January 1, 2004                       |                         | $             | 2,512 |         |            | $ | 1,980 |         |   | $ | 4,492 |        
|Charged to consolidated income statement |                         |               |       |         |            |   |       |         |   |   |       |        
|                                         | Additional provision    |               |       | 84,102  |            |   |       | 10,625  |   |   |       | 94,727  |  
|                                         | Unused amounts reversed |               |       |         |            |   |       | (1,318  | ) |   |       | (1,318  | )
|                                         | Used during the year    |               |       | (81,868 | )          |   |       | (10,955 | ) |   |       | (92,823 | )
|                                         |                         |               |       |         |            |   |       |         |  
|At 31 December 2004                      |                         | $             | 4,746 |         |            | $ | 332   |         |   | $ | 5,078 |        
|                                         |                         |               |       |         |            |   |       |         |  
|At January 1, 2003                       |                         | $             | 1,703 |         |            | $ | 1,788 |         |   | $ | 3,491 |        
|Charged to consolidated income statement |                         |               |       |         |            |   |       |         |   |   |       |        
|                                         | Additional provision    |               |       | 5,778   |            |   |       | 11,049  |   |   |       | 16,827  |  
|                                         | Used during the year    |               |       | (4,969  | )          |   |       | (10,857 | ) |   |       | (15,826 | )
|                                         |                         |               |       |         |            |   |       |         |  
|At 31 December 2003                      |                         | $             | 2,512 |         |            | $ | 1,980 |         |   | $ | 4,492 |        
|                                         |                         |               |       |         |            |   |       |         |  

Accrued
Expenses are summarized below:


|                                      |  |              |        |  |      |   |        | 
|------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                      |  | December 31, |       
|                                      |  |              |       
|                                      |  | 2003         |        |  | 2004 |  
|                                      |  |              |        |  |      |  
|Salaries and wages                    |  | $            | 8,397  |  |      | $ | 6,561  | 
|Purchased services                    |  |              | 18,179 |  |      |   | 12,337 | 
|Car repair and locomotive maintenance |  |              | 7,011  |  |      |   | 6,728  | 
|                                      |  |              |        |  |      |  
|                                      |  | $            | 33,587 |  |      | $ | 25,626 | 
|                                      |  |              |        |  |      |  
|Total provisions and accrued expenses |  | $            | 38,079 |  |      | $ | 30,704 | 
|                                      |  |              |        |  |      |  

NOTE 13 OTHER LONG-TERM LIABILITIES:


|                   |  |              |        |  |      |   |        | 
|------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                   |  | December 31, |       
|                   |  |              |       
|                   |  | 2003         |        |  | 2004 |  
|                   |  |              |        |  |      |  
|Alstom transportes |  | $            | 21,828 |  |      | $ | 13,867 | 
|Tax
    payable(1) |  |              | 9,956  |  |      |   | 9,956  | 
|Seniority premium  |  |              | 847    |  |      |   | 1,037  | 
|Other              |  |              | 1,093  |  |      |   | 344    | 
|                   |  |              |        |  |      |  
|                   |  | $            | 33,724 |  |      | $ | 25,204 | 
|                   |  |              |        |  |      |  






|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(1) | Withholding tax payable in 2009 which is the maturity date for
    the senior discount debentures. (See Note 9).

F-24



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


NOTE 14 STOCKHOLDERS EQUITY:






|                       |  |                   |         |             |                   |  |         |        |             |   |         |  |  |             |         |  |        |   |           |  |  |  |           | 
|---------------------- |  | ----------------- | ------- | ----------- | ----------------- |  | ------- | ------ | ----------- | - | ------- |  |  | ----------- | ------- |  | ------ | - | --------- |  |  |  | --------- | 
|                       |  | Series A shares |         |             | Series B shares |  |         | Total  |            
|                       |  |                   |         |             |                   |  |         |        |            
|Shareholder            |  | Amount            |         |             | Number            |  |         | Amount |             |   | Number  |  |  | Amount      |         |  | Number |  
|                       |  |                   |         |             |                   |  |         |        |             |   |         |  |  |             |         |  |        |  
|                       |  |                   |         | (thousands) |                   |  |         |        | (thousands) |   |         |  |  | (thousands) |        
|Grupo TFM (Class I)    |  | $                 | 457,485 |             |                   |  | 359,975 |        |             | $ | 439,545 |  |  |             | 345,858 |  |        | $ | 897,030   |  |  |  | 705,833   | 
|Grupo TFM (Class II)   |  |                   | 260,139 |             |                   |  | 204,692 |        |             |   | 249,937 |  |  |             | 196,665 |  |        |   | 510,076   |  |  |  | 401,357   | 
|Government (Class III) |  |                   | 179,406 |             |                   |  | 141,167 |        |             |   | 172,370 |  |  |             | 135,631 |  |        |   | 351,776   |  |  |  | 276,798   | 
|                       |  |                   |         |             |                   |  |         |        |             |   |         |  |  |             |         |  |        |  
|Total                  |  | $                 | 897,030 |             |                   |  | 705,834 |        |             | $ | 861,852 |  |  |             | 678,154 |  |        | $ | 1,758,882 |  |  |  | 1,383,988 | 
|                       |  |                   |         |             |                   |  |         |        |             |   |         |  |  |             |         |  |        |  







F-25



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)








NOTE 15 OTHER EXPENSES NET:


|                                                |  |              |         |   |      |   |         |      |  |   |        |  
|----------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                |  | December 31, |        
|                                                |  |              |        
|                                                |  | 2002         |         |   | 2003 |   |         | 2004 | 
|                                                |  |              |         |   |      |   |         |      | 
|Fees in VAT
    Lawsuit(1)                      |  | $            | (6,260  | ) |      | $ | (26,701 | )    |  | $ | (5,827 | )
|Loss on sale of property and equipment          |  |              | (5,030  | ) |      |   | (1,857  | )    |  |   | (65    | )
|Cost of property and equipment write
    off(2) |  |              | (1,867  | ) |      |   | (1,052  | )    |  |   | (3,639 | )
|Cost of locomotive sublease                     |  |              | (1,256  | ) |      |   | (1,240  | )    |  |   | (1,138 | )
|Electric locomotive maintenance                 |  |              | (2,428  | ) |      |   | (2,428  | )    |  |   | (958   | )
|Maintenance and electricity to catenary         |  |              | (1,884  | ) |      |   | (1,781  | )    |  |   | (966   | )
|Gain on Mexrail transaction                     |  |              |         |   |      |   |         |      |  |   | 7,355  |  
|Gain on sale of Hercules Mariscala Line         |  |              | 2,384   |   |      |   |         |      |  |   |        |  
|Recoverable income tax                          |  |              |         |   |      |   | 1,222   |      |  |   | 144    |  
|Other Net                                      |  |              | (4,542  | ) |      |   | (2,046  | )    |  |   | (1,344 | )
|                                                |  |              |         |   |      |   |         |      | 
|                                                |  | $            | (20,883 | ) |      | $ | (35,883 | )    |  | $ | (6,438 | )
|                                                |  |              |         |   |      |   |         |      | 






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As a result of the resolution of the courts regarding the VAT
    claim, in which TFM won on August 13, 2003, TFM has paid to
    external lawyers handling the case on behalf of the Company,
    fees in accordance with the terms of the agreements. (See
    Note 17).
|(2) | Property and equipment damaged in railroad repairs that is
    written off and replaced by new property and equipment.                                                                                                                                                    

NOTE 16 INCOME TAX, ASSET TAX AND TAX LOSS
CARRYFORWARDS:




| |           
| | ----------
| | Income tax





F-26



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)






|                                 |  |                         |        |  |      |   |        |      |  |   |         |  
|-------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | -
|                                 |  | Year ended December 31, |       
|                                 |  |                         |       
|                                 |  | 2002                    |        |  | 2003 |   |        | 2004 | 
|                                 |  |                         |        |  |      |   |        |      | 
|Current income tax               |  | $                       |       |  |      | $ | 10,763 |      |  | $ | 7,630   |  
|Deferred income tax expense      |  |                         | 32,033 |  |      |   | 23,344 |      |  |   | (22,909 | )
|                                 |  |                         |        |  |      |   |        |      | 
|Net income tax expense (benefit) |  | $                       | 32,033 |  |      | $ | 34,107 |      |  | $ | (15,279 | )
|                                 |  |                         |        |  |      |   |        |      | 



|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                 |  | Year ended December 31, |        
|                                                                 |  |                         |        
|                                                                 |  | 2002                    |         |   | 2003 |   |         | 2004 | 
|                                                                 |  |                         |         |   |      |   |         |      | 
|Income (loss) before income tax                                  |  | $                       | 20,599  |   |      | $ | (27,320 | )    |  | $ | (9,598  | )
|                                                                 |  |                         |         |   |      |   |         |      | 
|Income tax at 35% in 2002 and 34% in 2003 and 33% in 2004        |  | $                       | 7,210   |   |      | $ | (9,289  | )    |  | $ | 3,167   |  
|(Decrease) increase resulting from:                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Effects of inflationary and devaluation components               |  |                         | (41,544 | ) |      |   | 15,671  |      |  |   | 17,583  |  
|Indexation of depreciation and amortization                      |  |                         | 50,179  |   |      |   | 31,118  |      |  |   | (18,329 | )
|Effects of inflation and remeasurement of tax loss carryforwards |  |                         | 12,362  |   |      |   | (9,765  | )    |  |   | (24,263 | )
|Non-deductible expenses                                          |  |                         | 2,128   |   |      |   | 578     |      |  |   | 453     |  
|Change in tax rates                                              |  |                         | (1,973  | ) |      |   | 2,979   |      |  |   | 4,935   |  
|Other Net                                                       |  |                         | 3,671   |   |      |   | 2,815   |      |  |   | 1,175   |  
|                                                                 |  |                         |         |   |      |   |         |      | 
|Net deferred income tax expense (benefit)                        |  | $                       | 32,033  |   |      | $ | 34,107  |      |  | $ | (15,279 | )
|                                                                 |  |                         |         |   |      |   |         |      | 





|                              |  |              |          |   |      |   |          |  
|----------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                              |  | December 31, |         
|                              |  |              |         
|                              |  | 2003         |          |   | 2004 |  
|                              |  |              |          |   |      |  
|Tax-loss carryforwards        |  | $            | 462,758  |   |      | $ | 428,197  |  
|Inventories and provisions    |  |              | 20,597   |   |      |   | 29,188   |  
|Machinery and equipment       |  |              | (48,224  | ) |      |   | (32,540  | )
|Concession rights             |  |              | (356,772 | ) |      |   | (325,640 | )
|Other                         |  |              | (4,526   | ) |      |   | (3,263   | )
|                              |  |              |          |   |      |  
|Net deferred income tax asset |  | $            | 73,833   |   |      | $ | 95,942   |  
|                              |  |              |          |   |      |  



F-27



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)






| |          
| | ---------
| | Asset tax





| |                       
| | ----------------------
| | Tax loss carryforwards



|              |  |                   |           |  |            |  |      | 
|------------- |  | ----------------- | --------- |  | ---------- |  | ---- | 
|              |  | Inflation-indexed |           |  |           
|Year in which |  | amount as of      |           |  | Year of    | 
|loss arose    |  | December 31, 2004 |           |  | expiration | 
|              |  |                   |           |  |            | 
|1997          |  | $                 | 187,101   |  |            |  | 2046 | 
|1998          |  |                   | 358,078   |  |            |  | 2046 | 
|1999          |  |                   | 9,569     |  |            |  | 2046 | 
|2000          |  |                   | 169,249   |  |            |  | 2046 | 
|2001          |  |                   | 72,695    |  |            |  | 2046 | 
|2002          |  |                   | 416,844   |  |            |  | 2012 | 
|2003          |  |                   | 303,170   |  |            |  | 2046 | 
|              |  |                   |           |  |            | 
|              |  | $                 | 1,516,706 |  |            |  |      | 
|              |  |                   |           |  |            | 

NOTE 17 COMMITMENTS AND CONTINGENCIES:




| |             
| | ------------
| | Commitments:



| |                
| | ---------------
| | Concession duty





| |                          
| | -------------------------
| | Finance lease obligations





| |                            
| | ---------------------------
| | Locomotive operating leases



F-28



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|                    |  |                 |         |  |      |   |         | 
|------------------- |  | --------------- | ------- |  | ---- | - | ------- | 
|                    |  | At December 31, |        
|Year ending         |  |                 |        
|December 31,        |  | 2003            |         |  | 2004 |  
|                    |  |                 |         |  |      |  
|2004                |  | $               | 29,135  |  |      |   |         | 
|2005                |  |                 | 29,095  |  |      | $ | 29,095  | 
|2006                |  |                 | 29,095  |  |      |   | 29,095  | 
|2007                |  |                 | 29,095  |  |      |   | 29,095  | 
|2008 and thereafter |  |                 | 29,135  |  |      |   | 29,095  | 
|2009 and thereafter |  |                 | 315,038 |  |      |   | 29,095  | 
|2010 and thereafter |  |                 |         |  |      |   | 285,983 | 
|                    |  |                 |         |  |      |  
|                    |  | $               | 460,593 |  |      | $ | 431,458 | 
|                    |  |                 |         |  |      |  



| |                          
| | -------------------------
| | Railcars operating leases



|                    |  |                 |         |  |      |   |         | 
|------------------- |  | --------------- | ------- |  | ---- | - | ------- | 
|                    |  | At December 31, |        
|Year ending         |  |                 |        
|December 31,        |  | 2003            |         |  | 2004 |  
|                    |  |                 |         |  |      |  
|2004                |  | $               | 31,930  |  |      |   |         | 
|2005                |  |                 | 15,592  |  |      | $ | 33,871  | 
|2006                |  |                 | 12,642  |  |      |   | 31,255  | 
|2007                |  |                 | 10,433  |  |      |   | 27,139  | 
|2008                |  |                 | 9,498   |  |      |   | 23,168  | 
|2009 and thereafter |  |                 | 40,942  |  |      |   | 18,233  | 
|2010                |  |                 |         |  |      |   | 60,107  | 
|                    |  |                 |         |  |      |  
|                    |  | $               | 121,037 |  |      | $ | 193,773 | 
|                    |  |                 |         |  |      |  



| |                                   
| | ----------------------------------
| | Locomotives maintenance agreements





| |                                               
| | ----------------------------------------------
| | Track maintenance and rehabilitation agreement





| |                        
| | -----------------------
| | Fuel purchase agreement



F-29



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)






| |                               
| | ------------------------------
| | Fuel freight service agreement



|     |  |            |  |           
|---- |  | ---------- |  | ----------
|     |  | Minimum    |  | Maximum   
|     |  |            |  |           
|2004 |  | Ps 98,769  |  | Ps 246,922
|2005 |  | 98,769     |  | 246,922   
|2006 |  | 65,756     |  | 164,390   
|     |  |            |  |           
|     |  | Ps 263,294 |  | Ps 658,234
|     |  |            |  |           



| |               
| | --------------
| | Contingencies:



| |                                   
| | ----------------------------------
| | A)     Value Added Tax
    Lawsuit









F-30



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


















| |                                                                      
| | ---------------------------------------------------------------------
| | B)     Ferrocarril Mexicano, S. A.
    de C. V. (Ferromex) disputes



F-31



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
















| |                                   
| | ----------------------------------
| | C)     Other legal
    proceedings



| |   |                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company is a party to various other legal proceedings and
    administrative actions, all of which are of an ordinary or
    routine nature and incidental to its operations. Although it is
    impossible to predict the outcome of any legal proceeding, in
    the opinion of the Companys Management, such proceedings

F-32



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | and actions should not, individually or in the aggregate, have a
    material adverse effect on the Companys financial
    condition, results of operations or liquidity.                                                                                                                                                                                                                                                                                                                   
|
| |  | The Company has significant transactions and relationships with
    related parties. Because of these relationships, in accordance
    with the Mexican Income Tax Law, the Company must obtain a
    transfer pricing study that confirms that the terms of these
    transactions are the same as those that would result from
    transactions among wholly unrelated parties. The Company has the
    transfer pricing study from 2003 and is in the process of
    updating such report.
|
| |  | In January 2004, TFM and Arrendadora TFM assumed joint and
    several responsibility for the prepayment of federal taxes.                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The SAT, which is empowered to verify tax results for the last
    five years, is performing a review of the TFMs 2000 and
    2001 tax results. At present no final conclusion has been
    reached from the tax authorities; however, the Company considers
    that no material adverse effect would result from these reviews.                                                                                                                                                          

NOTE 18 RECONCILIATION OF DIFFERENCES BETWEEN
IFRS AND U.S. GAAP:






|   |                             
|-- | ----------------------------
|a) | Reconciliation of net income

|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | ------------ | --- | ----------------------- | ---- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                          |  |              |     | Year ended December 31, |     
|                                                                          |  | Reference to |     |                         |      |  
|                                                                          |  | subnote d.   |     |                         | 2002 |   |         | 2003 |  |   | 2004    |  
|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |  
|Net income (loss) under IFRS                                              |  |              |     |                         |      | $ | (11,350 | )    |  | $ | (61,044 | ) |  | $ | 25,346  |  
|Deferred income tax (expense) benefit                                     |  |              | i   |                         |      |   | 121,687 |      |  |   | 84,255  |   |  |   | (19,814 | )
|Deferred employees statutory profit sharing benefit                      |  |              | i   |                         |      |   | 26,075  |      |  |   | 11,528  |   |  |   | 6,556   |  
|Reversal of capitalized IFRS deferred charges                             |  |              | ii  |                         |      |   | (231    | )    |  |   |         |   |  |   | (494    | )
|Reversal of IFRS amortization of deferred charges                         |  |              | ii  |                         |      |   | 933     |      |  |   | 34      |   |  |   | 171     |  
|Depreciation of the purchase price partial step up related to
    Mexrail |  |              | iii |                         |      |   | (459    | )    |  |   | (612    | ) |  |   | (357    | )
|Adjustment to carrying value of Mexrail due to disposition                |  |              |     |                         |      |   |         |      |  |   |         |   |  |   | (19,576 | )
|Effect of U.S. GAAP adjustments on minority interest                      |  |              |     |                         |      |   |         |      |  |   |        |   |  |   | 66      |  
|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |  
|Net income (loss) under U.S. GAAP                                         |  |              |     |                         |      | $ | 136,655 |      |  | $ | 34,161  |   |  | $ | (8,102  | )
|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |  

F-33



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|   |                                       
|-- | --------------------------------------
|b) | Reconciliation of stockholders equity

|                                                     |  |              |     |               |      |   |           |      |  |   |           |  
|---------------------------------------------------- |  | ------------ | --- | ------------- | ---- | - | --------- | ---- |  | - | --------- | -
|                                                     |  |              |     | December 31,  |     
|                                                     |  | Reference to |     |               |      |  
|                                                     |  | subnote d.   |     |               | 2003 |   |           | 2004 | 
|                                                     |  |              |     |               |      |   |           |      | 
|                                                     |  |              |     | (as restated) |      |   |          
|Stockholders equity under IFRS                      |  |              |     |               |      | $ | 1,587,472 |      |  | $ | 1,612,818 |  
|Deferred income tax                                  |  |              | i   |               |      |   | 117,606   |      |  |   | 97,792    |  
|Deferred employees statutory profit sharing benefit |  |              | i   |               |      |   | 50,061    |      |  |   | 56,617    |  
|Deferred charges, net                                |  |              | ii  |               |      |   | (197      | )    |  |   | (520      | )
|Effect of partial step up of Mexrail, net            |  |              | iii |               |      |   | 19,933    |      |  |   |           |  
|Long-term receivables from stockholder               |  |              | iv  |               |      |   | (661,116  | )    |  |   | (661,122  | )
|Effect of U.S. GAAP adjustments on minority interest |  |              |     |               |      |   |           |      |  |   | 66        |  
|                                                     |  |              |     |               |      |   |           |      | 
|Stockholders equity under U.S. GAAP                 |  |              |     |               |      | $ | 1,113,759 |      |  | $ | 1,105,651 |  
|                                                     |  |              |     |               |      |   |           |      | 



| |                                                                        
| | -----------------------------------------------------------------------
| | c)     Analysis of changes in
    stockholders equity under U.S. GAAP:

|                                                      |  |               |           |  |      |   |           |  
|----------------------------------------------------- |  | ------------- | --------- |  | ---- | - | --------- | -
|                                                      |  | December 31,  |          
|                                                      |  |               |          
|                                                      |  | 2003          |           |  | 2004 |  
|                                                      |  |               |           |  |      |  
|                                                      |  | (as restated) |           |  |     
|Beginning balance for the year                        |  | $             | 1,079,237 |  |      | $ | 1,113,759 |  
|Net income (loss)                                     |  |               | 34,161    |  |      |   | (8,102    | )
|Net movement in long-term receivable from stockholder |  |               | 361       |  |      |   | (6        | )
|                                                      |  |               |           |  |      |  
|Balance at end of the year                            |  | $             | 1,113,759 |  |      | $ | 1,105,651 |  
|                                                      |  |               |           |  |      |  



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | d)     Effect of restatement
    of the beginning balance in stockholders equity under U.S.
    GAAP

|                                                    |  |              |           |  
|--------------------------------------------------- |  | ------------ | --------- | -
|                                                    |  | December 31, |          
|                                                    |  | 2003         |          
|                                                    |  |              |          
|Beginning balance for 2003, as originally presented |  | $            | 1,740,714 |  
|Effect of restatement in 2003                       |  |              | (661,477  | )
|                                                    |  |              |          
|Beginning balance for 2003 as restated              |  | $            | 1,079,237 |  
|                                                    |  |              |          



| |                                                                          
| | -------------------------------------------------------------------------
| | e)     Significant quantified
    differences between IFRS and U.S. GAAP:



| |                                                                       
| | ----------------------------------------------------------------------
| | i.     Deferred income tax and
    employees statutory profit sharing





F-34



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)










|                                  |  |                 |          |   |                    |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------- |  | --------------- | -------- | - | ------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                  |  | Deferred income |          |   | Deferred profit    |  
|                                  |  | tax assets      |          |   | sharing tax assets |  
|                                  |  |                 |          |   |                    |  
|                                  |  | 2003            |          |   | 2004               |   |         | 2003 |  |   | 2004    |  
|                                  |  |                 |          |   |                    |   |         |      |  |   |         |  
|Amounts recorded under IFRS       |  | $               | 73,833   |   |                    | $ | 95,942  |      |  |   |         |   |  |   |         |  
|Amount determined under U.S. GAAP |  |                 | 191,886  |   |                    |   | 193,734 |      |  | $ | 50,061  |   |  | $ | 56,617  |  
|                                  |  |                 |          |   |                    |   |         |      |  |   |         |  
|Net difference                    |  | $               | (118,053 | ) |                    | $ | (97,792 | )    |  | $ | (50,061 | ) |  | $ | (56,617 | )
|                                  |  |                 |          |   |                    |   |         |      |  |   |         |  





| |                                       
| | --------------------------------------
| | ii.     Deferred financing
    charges







| |                                 
| | --------------------------------
| | iii.     Mexrail
    transaction



F-35



---



##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)










|          |  |      |        |  |      |   |        | 
|--------- |  | ---- | ------ |  | ---- | - | ------ | 
|          |  | 2003 |        |  | 2004 |  
|          |  |      |        |  |      |  
|IFRS      |  | $    | 14,565 |  |      | $ | 31,398 | 
|U.S. GAAP |  |      | 34,141 |  |      |   | 31,398 | 
|          |  |      |        |  |      |  
|          |  | $    | 19,576 |  |      |   |       | 
|          |  |      |        |  |      |  





|    |                                       
|--- | --------------------------------------
|iv. | Long-term receivables from stockholder





|   |                                             
|-- | --------------------------------------------
|f) | Other U.S. GAAP presentation
    differences



|   |                   
|-- | ------------------
|i. | Earnings per share



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|    |                                        
|--- | ---------------------------------------
|ii. | Intangible assets and long-lived assets





|     |                         
|---- | ------------------------
|iii. | Deferred financing costs





|   |                                                                                  
|-- | ---------------------------------------------------------------------------------
|g) | Effect of recently issued accounting standards as they
    relate to the Company.









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TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)










|   |                                             
|-- | --------------------------------------------
|h) | Consolidations of Variable Interest Entities





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TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




| |                                                                                    
| | -----------------------------------------------------------------------------------
| | i)     Condensed combined and
    consolidated balance sheets and income statements



Condensed combined and consolidated Balance Sheets


|                                                                  |                                            |               |           |           |      |   |           |           | 
|----------------------------------------------------------------- | ------------------------------------------ | ------------- | --------- | --------- | ---- | - | --------- | --------- | 
|                                                                  |                                            | December 31,  |          
|                                                                  |                                            |               |          
|                                                                  |                                            | 2003          |           |           | 2004 |  
|                                                                  |                                            |               |           |           |      |  
|                                                                  |                                            | (as restated) |           |           |     
|Total current assets                                              |                                            | $             | 221,787   |           |      | $ | 252,632   |          
|Long term account receivable                                      |                                            |               | 1,350     |           |      |   | 1,233     |          
|Concession rights and related assets Net                         |                                            |               | 1,124,182 |           |      |   | 1,082,034 |          
|Property, machinery and equipment Net                            |                                            |               | 660,294   |           |      |   | 558,669   |          
|Deferred income taxes and employees statutory profit
    sharing |                                            |               | 232,699   |           |      |   | 250,351   |          
|Other non-current assets                                          |                                            |               | 38,475    |           |      |   | 38,308    |          
|                                                                  |                                            |               |           |           |      |  
|                                                                  | Total assets                               |               | $         | 2,278,787 |      |   | $         | 2,183,227 | 
|                                                                  |                                            |               |           |           |      |  
|Total short-term liabilities                                      |                                            | $             | 358,834   |           |      | $ | 213,178   |          
|Total long-term liabilities                                       |                                            |               | 806,660   |           |      |   | 865,399   |          
|                                                                  |                                            |               |           |           |      |  
|                                                                  | Total liabilities                          |               |           | 1,165,494 |      |   |           | 1,078,577 | 
|                                                                  |                                            |               |           |           |      |  
|Minority interest                                                 |                                            |               | (466      | )         |      |   | (1,001    | )        
|                                                                  |                                            |               |           |           |      |  
|Capital stock                                                     |                                            |               | 1,758,882 |           |      |   | 1,758,882 |          
|Long-term receivables from stockholder                            |                                            |               | (661,116  | )         |      |   | (661,122  | )        
|Treasury shares                                                   |                                            |               | (256,130  | )         |      |   | (256,130  | )        
|Effect on purchase of subsidiary shares                           |                                            |               | (21,395   | )         |      |   | (21,395   | )        
|Retained earnings                                                 |                                            |               | 293,518   |           |      |   | 285,416   |          
|                                                                  |                                            |               |           |           |      |  
|                                                                  | Total stockholders equity                 |               |           | 1,113,759 |      |   |           | 1,105,651 | 
|                                                                  |                                            |               |           |           |      |  
|                                                                  | Total liabilities and stockholders equity |               | $         | 2,278,787 |      |   | $         | 2,183,227 | 
|                                                                  |                                            |               |           |           |      |  

Condensed combined and consolidated Statements of
Income


|                                                                                   |  |                          |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                   |  | Years ended December 31, |         
|                                                                                   |  |                          |         
|                                                                                   |  | 2002                     |          |   | 2003 |   |          | 2004 | 
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Transportation revenues                                                            |  | $                        | 712,140  |   |      | $ | 698,528  |      |  | $ | 699,224  |  
|Cost and expenses                                                                  |  |                          | 539,183  |   |      |   | 557,330  |      |  |   | 569,710  |  
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Income on transportation                                                           |  |                          | 172,957  |   |      |   | 141,198  |      |  |   | 129,514  |  
|Other expenses Net                                                                |  |                          | (13,986  | ) |      |   | (32,974  | )    |  |   | (22,310  | )
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Operating income                                                                   |  |                          | 158,971  |   |      |   | 108,224  |      |  |   | 107,204  |  
|Net financing cost                                                                 |  |                          | (113,323 | ) |      |   | (124,876 | )    |  |   | (111,346 | )
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Income (loss) before provision for deferred income taxes and
    minority interest |  |                          | 45,648   |   |      |   | (16,652  | )    |  |   | (4,142   | )
|Equity method in associates                                                        |  |                          | 1,269    |   |      |   | 282      |      |  |   | 41       |  
|Current income tax                                                                 |  |                          |          |   |      |   | (10,763  | )    |  |   | (7,630   | )
|Deferred income tax benefit (expense)                                              |  |                          | 89,654   |   |      |   | 60,911   |      |  |   | 3,095    |  
|Minority interest                                                                  |  |                          | 84       |   |      |   | 383      |      |  |   | 534      |  
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Net income loss for the year                                                       |  | $                        | 136,655  |   |      | $ | 34,161   |      |  | $ | (8,102   | )
|                                                                                   |  |                          |          |   |      |   |          |      | 

F-39



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##### Table of Contents



TFM, S. A. DE C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


NOTE 19 SUBSEQUENT EVENT:


Mexican Supreme Court
Cases Relating to Statutory Profit Sharing Accounting
(Unaudited)






F-40



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA


MEXICANA, S. A. DE C. V.


COMBINED AND CONSOLIDATED


FINANCIAL STATEMENTS


DECEMBER 31, 2002, 2003 AND 2004


F-41



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
















|                             | 
|---------------------------- | 
|PricewaterhouseCoopers, S.C. | 
|                            
|/s/ Abraham Fuentes          | 
|Abraham Fuentes              | 
|Audit Partner                | 





F-42



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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.





CONSOLIDATED BALANCE SHEETS


(Note 1)


|                                                                            |                                                                                                       |                              |                                            |         |         |           |           |         |         |           | 
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------------- | ------------------------------------------ | ------- | ------- | --------- | --------- | ------- | ------- | --------- | 
|                                                                            |                                                                                                       | December 31,                 |                                           
|                                                                            |                                                                                                       |                              |                                           
|                                                                            |                                                                                                       | 2003                         |                                            |         | 2004    |          
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       | (Amounts in thousands        |                                           
|                                                                            |                                                                                                       | of US dollars)               |                                           
|ASSETS                                                                     
|Current assets:                                                             |                                                                                                       |                              |                                            |         |         |           |           |        
|                                                                            | Cash and cash equivalents                                                                             |                              | $                                          | 3,597   |         |           | $         | 14,245  |        
|                                                                            | Accounts receivable  net of allowance for doubtful
    accounts of $3,921 in 2003 and $3,871 in 2004 |                              |                                            | 101,595 |         |           |           | 106,014 |        
|                                                                            | Amounts due from related parties (Note 11)                                                            |                              |                                            | 1,550   |         |           |           | 31,569  |        
|                                                                            | Taxes recoverable (Note 3)                                                                            |                              |                                            | 51,244  |         |           |           | 41,902  |        
|                                                                            | Other accounts receivable  Net (Note 4)                                                              |                              |                                            | 34,046  |         |           |           | 30,155  |        
|                                                                            | Materials and supplies (Note 5)                                                                       |                              |                                            | 16,693  |         |           |           | 21,738  |        
|                                                                            | Other current assets (Note 6)                                                                         |                              |                                            | 13,090  |         |           |           | 7,036   |        
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       | Total current assets         |                                            |         | 221,815 |           |           |         | 252,659 |          
|Long-term account receivable                                                |                                                                                                       |                              | 1,350                                      |         |         |           | 1,233     |        
|Concession rights and related assets  Net
    (Note 7)                     |                                                                                                       |                              | 1,174,217                                  |         |         |           | 1,130,917 |        
|Property, machinery and equipment  Net (Note 8)                            |                                                                                                       |                              | 632,431                                    |         |         |           | 558,669   |        
|Investment held in associate companies (Note 2a.)                           |                                                                                                       |                              | 8,020                                      |         |         |           | 8,061     |        
|Intangible assets                                                           |                                                                                                       |                              | 1,163                                      |         |         |           | 678       |        
|Deposits                                                                    |                                                                                                       |                              | 411                                        |         |         |           | 4,324     |        
|Deferred income taxes (Note 16)                                             |                                                                                                       |                              | 78,845                                     |         |         |           | 100,870   |        
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       |                              | Total assets                               |         | $       | 2,118,252 |           |         | $       | 2,057,411 | 
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY                                       
|Short-term liabilities:                                                     |                                                                                                       |                              |                                            |         |         |           |           |        
|                                                                            | Current portion of long-term debt (Note 9)                                                            |                              | $                                          | 196,652 |         |           | $         | 68,835  |        
|                                                                            | Current portion of capital lease obligations (Note 17)                                                |                              |                                            | 414     |         |           |           | 373     |        
|                                                                            | Amounts due to related parties (Note 11)                                                              |                              |                                            | 6,150   |         |           |           | 3,907   |        
|                                                                            | Suppliers                                                                                             |                              |                                            | 76,902  |         |           |           | 57,169  |        
|                                                                            | Advance payments from customers                                                                       |                              |                                            | 5,809   |         |           |           | 3,859   |        
|                                                                            | Accounts payable                                                                                      |                              |                                            | 32,897  |         |           |           | 44,930  |        
|                                                                            | Provisions and accrued expenses (Note 12)                                                             |                              |                                            | 38,079  |         |           |           | 30,704  |        
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       | Total short-term liabilities |                                            |         | 356,903 |           |           |         | 209,777 |          
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|Long-term portion of capital lease obligations (Note 17)                    |                                                                                                       |                              | 1,556                                      |         |         |           | 1,255     |        
|Long-term debt (Note 9)                                                     |                                                                                                       |                              | 745,189                                    |         |         |           | 816,659   |        
|Other long-term liabilities (Note 13)                                       |                                                                                                       |                              | 33,724                                     |         |         |           | 25,204    |        
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       | Total long-term liabilities  |                                            |         | 780,469 |           |           |         | 843,118 |          
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       |                              | Total liabilities                          |         |         | 1,137,372 |           |         |         | 1,052,895 | 
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|Minority interest (Note 2o.)                                                |                                                                                                       |                              | 317,475                                    |         |         |           | 322,543   |        
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|Stockholders equity (Note 14):                                             |                                                                                                       |                              |                                            |         |         |           |           |        
|Common stock, 10,063,570 shares authorized and issued
    without par value |                                                                                                       |                              | 807,008                                    |         |         |           | 807,008   |        
|Treasury shares                                                             |                                                                                                       |                              | (204,904                                   | )       |         |           | (204,904  | )      
|Effect on purchase of subsidiary shares                                     |                                                                                                       |                              | (33,562                                    | )       |         |           | (33,562   | )      
|Retained earnings                                                           |                                                                                                       |                              | 94,863                                     |         |         |           | 113,431   |        
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       |                              | Total stockholders equity                 |         |         | 663,405   |           |         |         | 681,973   | 
|                                                                            |                                                                                                       |                              |                                            |         |         |          
|                                                                            |                                                                                                       |                              | Total liabilities and stockholders equity |         | $       | 2,118,252 |           |         | $       | 2,057,411 | 
|                                                                            |                                                                                                       |                              |                                            |         |         |          



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.





COMBINED AND CONSOLIDATED STATEMENTS OF INCOME


(Notes 1)


|                                                                            |                                       |                                             |          |         |      |   |          |         |  |   |          |         | 
|--------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------------- | -------- | ------- | ---- | - | -------- | ------- |  | - | -------- | ------- | 
|                                                                            |                                       | Year Ended December 31,                     |         
|                                                                            |                                       |                                             |         
|                                                                            |                                       | 2002                                        |          |         | 2003 |   |          | 2004    | 
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|                                                                            |                                       | (Amounts in thousands of US dollars, except |         
|                                                                            |                                       | per share amounts)                          |         
|Transportation revenues                                                     |                                       | $                                           | 712,140  |         |      | $ | 698,528  |         |  | $ | 699,225  |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Costs and expenses:                                                         |                                       |                                             |          |         |      |   |          |         |  |   |          |        
|                                                                            | Salaries, wages and employee benefits |                                             |          | 124,413 |      |   |          | 121,762 |  |   |          | 117,386 | 
|                                                                            | Purchased services                    |                                             |          | 163,835 |      |   |          | 155,594 |  |   |          | 150,421 | 
|                                                                            | Fuel, material and supplies           |                                             |          | 58,594  |      |   |          | 71,843  |  |   |          | 89,381  | 
|                                                                            | Other costs                           |                                             |          | 129,428 |      |   |          | 130,769 |  |   |          | 127,792 | 
|                                                                            | Depreciation and amortization         |                                             |          | 82,552  |      |   |          | 86,554  |  |   |          | 88,375  | 
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|                                                                            |                                       |                                             | 558,822  |         |      |   | 566,522  |         |  |   | 573,355  |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Income on transportation                                                    |                                       |                                             | 153,318  |         |      |   | 132,006  |         |  |   | 125,870  |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Other expenses  Net (Note 15)                                              |                                       |                                             | (20,524  | )       |      |   | (35,664  | )       |  |   | (6,438   | )      
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Operating income                                                            |                                       |                                             | 132,794  |         |      |   | 96,342   |         |  |   | 119,432  |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Interest income                                                             |                                       |                                             | 4,974    |         |      |   | 1,509    |         |  |   | 514      |        
|Interest expense                                                            |                                       |                                             | (101,722 | )       |      |   | (112,641 | )       |  |   | (111,973 | )      
|Exchange (loss) gain  Net                                                  |                                       |                                             | (17,411  | )       |      |   | (13,695  | )       |  |   | 429      |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Net financing cost                                                          |                                       |                                             | (114,159 | )       |      |   | (124,827 | )       |  |   | (111,030 | )      
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Equity earnings in associates (Note 2a)                                     |                                       |                                             | 1,269    |         |      |   | 282      |         |  |   | 41       |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Income (loss) before provision for income taxes and minority
    interest   |                                       |                                             | 19,904   |         |      |   | (28,203  | )       |  |   | 8,443    |        
|Current and deferred income tax (Note 16)                                   |                                       |                                             | (30,233  | )       |      |   | (32,890  | )       |  |   | 15,194   |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|(Loss) income before minority interest                                      |                                       |                                             | (10,329  | )       |      |   | (61,093  | )       |  |   | 23,637   |        
|Minority interest                                                           |                                       |                                             | 2,341    |         |      |   | 12,154   |         |  |   | (5,069   | )      
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Net (loss) income for the year                                              |                                       | $                                           | (7,988   | )       |      | $ | (48,939  | )       |  | $ | 18,568   |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Net (loss) income for the year per share (basic and diluted)
    (Note 2p.) |                                       | $                                           | (.89     | )       |      | $ | (6.45    | )       |  | $ | 2.45     |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 
|Weighted average shares outstanding                                         |                                       |                                             | 9,011    |         |      |   | 7,585    |         |  |   | 7,585    |        
|                                                                            |                                       |                                             |          |         |      |   |          |         | 



F-44



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.





COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES


IN STOCKHOLDERS EQUITY


For the Years Ended December 31, 2002, 2003 and
2004


(Notes 1 and 14)


|                                        |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       |         |   |  |   |          |  
|--------------------------------------- |  | ------------------------------------ | ------- |  | -------- | ----------- | -------- | ---------- |  | - | -------- | - |  | ----- | ------- | - |  | - | -------- | -
|                                        |  |                                      |         |  |          | Effect on   |          |            |  |   |         
|                                        |  |                                      |         |  |          | Purchase of |          |            |  |   |         
|                                        |  | Common                               |         |  | Treasury |             |          | Subsidiary |  |   | Retained |   |  |      
|                                        |  | Stock                                |         |  | Shares   |             |          | Shares     |  |   | Earnings |   |  | Total |        
|                                        |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       |        
|                                        |  | (Amounts in thousands of US dollars) |        
|Balance at December 31, 2001            |  | $                                    | 807,008 |  |          |             |          |            |  | $ | 17,912   |   |  | $     | 151,512 |   |  | $ | 976,432  |  
|Effect on purchase of subsidiary shares |  |                                      |         |  |          |             |          |            |  |   | (51,474  | ) |  |       | 278     |   |  |   | (51,196  | )
|Treasury shares                         |  |                                      |         |  |          | $           | (204,904 | )          |  |   |          |   |  |       |         |   |  |   | (204,904 | )
|Net loss for the year                   |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       | (7,988  | ) |  |   | (7,988   | )
|                                        |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       |        
|Balance at December 31, 2002            |  |                                      | 807,008 |  |          |             | (204,904 | )          |  |   | (33,562  | ) |  |       | 143,802 |   |  |   | 712,344  |  
|Net loss for the year                   |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       | (48,939 | ) |  |   | (48,939  | )
|                                        |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       |        
|Balance at December 31, 2003            |  |                                      | 807,008 |  |          |             | (204,904 | )          |  |   | (33,562  | ) |  |       | 94,863  |   |  |   | 663,405  |  
|Net income for the year                 |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       | 18,568  |   |  |   | 18,568   |  
|                                        |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       |        
|Balance at December 31, 2004            |  | $                                    | 807,008 |  |          | $           | (204,904 | )          |  | $ | (33,562  | ) |  | $     | 113,431 |   |  | $ | 681,973  |  
|                                        |  |                                      |         |  |          |             |          |            |  |   |          |   |  |       |        



F-45



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.





COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS


(Note 1)


|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |         |         |  
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                      |                                                                                                             | Year Ended December 31,                            |         
|                                                                                      |                                                                                                             |                                                    |         
|                                                                                      |                                                                                                             | 2002                                               |          |        | 2003    |   |         | 2004    |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|                                                                                      |                                                                                                             | (Amounts in thousands of US dollars)               |         
|Cash flows from operating activities:                                                 |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |        
|Net (loss) income for the year                                                        |                                                                                                             | $                                                  | (7,988   | )      |         | $ | (48,939 | )       |         | $ | 18,568  |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |        
|                                                                                      | Depreciation and amortization                                                                               |                                                    |          | 82,552 |         |   |         | 86,554  |         |   |         | 88,375  |        
|                                                                                      | Amortization of discount on senior unsecured debentures and
    commercial paper                            |                                                    |          | 23,158 |         |   |         | 370     |         |   |         | 47      |        
|                                                                                      | Income tax and deferred income tax expense (benefit)                                                        |                                                    |          | 30,233 |         |   |         | 32,890  |         |   |         | (15,194 | )      
|                                                                                      | Minority interest                                                                                           |                                                    |          | (2,341 | )       |   |         | (12,154 | )       |   |         | 5,069   |        
|                                                                                      | Loss on sale of property, machinery and equipment and write off
    of cost of property and machinery  Net |                                                    |          | 6,897  |         |   |         | 2,909   |         |   |         | 3,704   |        
|                                                                                      | Gain on sale of Mexrails shares including the call option                                                  |                                                    |          |        |         |   |         |         |         |   |         | 7,355   |        
|                                                                                      | Changes in other assets and liabilities:                                                                    |                                                    |          |        |         |   |         |         |         |   |         |         |        
|                                                                                      |                                                                                                             | Accounts receivable                                |          |        | 12,966  |   |         |         | (10,999 | ) |         |         | (12,399 | )
|                                                                                      |                                                                                                             | Other accounts receivable                          |          |        | (36,915 | ) |         |         | 21,338  |   |         |         | 7,680   |  
|                                                                                      |                                                                                                             | Materials and supplies                             |          |        | 3,068   |   |         |         | 3,568   |   |         |         | (5,696  | )
|                                                                                      |                                                                                                             | Other current assets                               |          |        | (2,170  | ) |         |         | (957    | ) |         |         | (5,792  | )
|                                                                                      |                                                                                                             | Amounts due to related parties                     |          |        | (4,180  | ) |         |         | 741     |   |         |         | (14,217 | )
|                                                                                      |                                                                                                             | Accounts payable and accrued expenses              |          |        | 13,811  |   |         |         | 27,269  |   |         |         | (3,913  | )
|                                                                                      |                                                                                                             | Other non-current assets and long-term liabilities |          |        | (6,345  | ) |         |         | (2,926  | ) |         |         | 12,105  |  
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|                                                                                      |                                                                                                             | Total adjustments                                  |          |        | 120,734 |   |         |         | 148,603 |   |         |         | 67,124  |  
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Net cash provided by operating activities                                             |                                                                                                             |                                                    | 112,746  |        |         |   | 99,664  |         |         |   | 85,692  |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Cash flows from investing activities:                                                 |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |        
|Net proceeds from sale of Mexrails shares                                            |                                                                                                             |                                                    |          |        |         |   |         |         |         |   | 27,147  |        
|Investment in Mexrail                                                                 |                                                                                                             |                                                    | (44,000  | )      |         |   |         |         |         |   |         |        
|Sales of property, machinery and equipment                                            |                                                                                                             |                                                    | 642      |        |         |   | 2,390   |         |         |   | 420     |        
|Acquisition of property, machinery and equipment                                      |                                                                                                             |                                                    | (89,355  | )      |         |   | (73,121 | )       |         |   | (41,143 | )      
|Acquisition of treasury shares                                                        |                                                                                                             |                                                    | (162,575 | )      |         |   |         |         |         |   |         |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Net cash used in investing activities                                                 |                                                                                                             |                                                    | (295,288 | )      |         |   | (70,731 | )       |         |   | (13,576 | )      
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Cash flows from financing activities:                                                 |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |        
|Payments under commercial paper                                                       |                                                                                                             |                                                    | (340,000 | )      |         |   | (37,001 | )       |         |   | (10,000 | )      
|Proceeds from commercial paper                                                        |                                                                                                             |                                                    | 196,738  |        |         |   |         |         |         |   | 20,000  |        
|Proceeds from senior notes                                                            |                                                                                                             |                                                    | 175,241  |        |         |   |         |         |         |   |         |        
|Proceeds from term loan facility                                                      |                                                                                                             |                                                    | 128,000  |        |         |   |         |         |         |   |         |        
|Principal payment of term loan facility                                               |                                                                                                             |                                                    |          |        |         |   | (18,286 | )       |         |   | (71,129 | )      
|Principal payments under capital lease obligations                                    |                                                                                                             |                                                    | (298     | )      |         |   | (298    | )       |         |   | (339    | )      
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Net cash provided by (used in) financing activities                                   |                                                                                                             |                                                    | 159,681  |        |         |   | (55,585 | )       |         |   | (61,468 | )      
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|(Decrease) increase in cash and cash equivalents                                      |                                                                                                             |                                                    | (22,861  | )      |         |   | (26,652 | )       |         |   | 10,648  |        
|Cash and cash equivalents:                                                            |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |        
|                                                                                      | Beginning of the year                                                                                       |                                                    |          | 53,110 |         |   |         | 30,249  |         |   |         | 3,597   |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|                                                                                      | End of the year                                                                                             |                                                    | $        | 30,249 |         |   | $       | 3,597   |         |   | $       | 14,245  |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Supplemental information:                                                             |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |        
|Cash paid during the year for interest                                                |                                                                                                             | $                                                  | 58,525   |        |         | $ | 98,626  |         |         | $ | 97,604  |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Non-cash transactions:                                                                |                                                                                                             |                                                    |          |        |         |   |         |         |         |   |         |        
|Due from Mexican Government                                                           |                                                                                                             | $                                                  | 93,555   |        |         |   |         |         |         |   |         |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Due from related parties                                                              |                                                                                                             | $                                                  | 20,000   |        |         |   |         |         |         |   |         |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        
|Assets acquired through capital lease obligation                                      |                                                                                                             |                                                    |          |        |         | $ | 120     |         |         |   |         |        
|                                                                                      |                                                                                                             |                                                    |          |        |         |   |         |         |        



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.





NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS


Years Ended December 31, 2002, 2003 and 2004


(Amounts in thousands of US dollars ($) or thousands of Pesos
(Ps), except number of shares)


NOTE 1  THE COMPANY:




















F-47



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:






| |                 
| | ----------------
| | a. Consolidation





| |             
| | ------------
| | Subsidiaries











| |           
| | ----------
| | Associates



F-48



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |               
| | --------------
| | b. Translation







| |                             
| | ----------------------------
| | c. Cash and cash equivalents





| |                       
| | ----------------------
| | d. Accounts receivable







| |                          
| | -------------------------
| | e. Materials and supplies





| |                                        
| | ---------------------------------------
| | f. Concession rights and related assets



F-49



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) The tangible assets acquired pursuant to the asset
    purchase agreement, consisting of locomotives, rail cars and
    materials and supplies;
|
| | (ii) The rights to utilize the right of way, track
    structure, buildings and related maintenance facilities of the
    TFM lines;               
|
| | (iii) The 25% equity interest in the company established to
    operate the Mexico City rail terminal facilities; and                              
|
| | (iv) Finance lease obligations assumed.                                                                                                            



| |                                     
| | ------------------------------------
| | g. Property, machinery and equipment









| |                       
| | ----------------------
| | h. Deferred income tax









| |                                           
| | ------------------------------------------
| | i. Employees statutory profit
    sharing





| |              
| | -------------
| | j. Borrowings



F-50



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                      
| | ---------------------
| | k. Seniority premiums







| |                       
| | ----------------------
| | l. Revenue recognition





| |                                               
| | ----------------------------------------------
| | m. Intangible assets and long-lived
    assets





| |          
| | ---------
| | n. Leases







| |                     
| | --------------------
| | o. Minority interest





| |                               
| | ------------------------------
| | p. Net income (loss) per share



F-51



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                    
| | -------------------
| | q. Use of estimates





| |              
| | -------------
| | r. Provisions







| |                 
| | ----------------
| | s. Share capital









| |                                                    
| | ---------------------------------------------------
| | t. Financial instruments and hedging
    activities







F-52



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |            
| | -----------
| | u. Segments





| |                             
| | ----------------------------
| | v. Financial risk management





















| |                     
| | --------------------
| | w. Reclassifications



F-53



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                 
| | --------------------------------
| | x. New accounting pronouncements





| |                                                                          
| | -------------------------------------------------------------------------
| | IAS 1 Presentation or Financial Statements                               
|
| | IAS 2 Inventories                                                        
|
| | IAS 8 Accounting Policies, Changes in Accounting Estimates and
    Errors
|
| | IAS 10 Events after the Balance Sheet                                    
|
| | IAS 16 Property, Plant and Equipment                                     
|
| | IAS 17 Leases                                                            
|
| | IAS 21 The Effects of Changes in Foreign Exchange Rates                  
|
| | IAS 24 Related Party Disclosures                                         
|
| | IAS 27 Consolidated and Separate Financial Statements                    
|
| | IAS 28 Investments in Associates                                         
|
| | IAS 31 Interests in Joint Ventures                                       
|
| | IAS 32 Financial Instruments: Disclosure and Presentation                
|
| | IAS 33 Earnings per Share                                                
|
| | IAS 39 Financial Instruments: Recognition and Measurement                
|
| | IAS 40 Investment Property                                               











F-54



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE 3  TAXES RECOVERABLE:




|                                                |  |              |        |  |      |   |        | 
|----------------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                                |  | December 31, |       
|                                                |  |              |       
|                                                |  | 2003         |        |  | 2004 |  
|                                                |  |              |        |  |      |  
|Special tax on production and services          |  | $            | 31,000 |  |      | $ | 27,700 | 
|Withholding tax (Car Hire)                      |  |              | 4,917  |  |      |   | 4,957  | 
|Payroll taxes                                   |  |              | 5,013  |  |      |   | 5,064  | 
|Withholding tax on the sale of Mexrails shares |  |              |        |  |      |   | 3,268  | 
|Value added tax  Net                           |  |              | 9,884  |  |      |   | 83     | 
|Other                                           |  |              | 430    |  |      |   | 830    | 
|                                                |  |              |        |  |      |  
|                                                |  | $            | 51,244 |  |      | $ | 41,902 | 
|                                                |  |              |        |  |      |  

NOTE 4  OTHER ACCOUNTS
RECEIVABLE  NET:


|                              |  |              |        |  |      |   |        | 
|----------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                              |  | December 31, |       
|                              |  |              |       
|                              |  | 2003         |        |  | 2004 |  
|                              |  |              |        |  |      |  
|Services to foreign railroads |  | $            | 12,786 |  |      | $ | 12,150 | 
|Car repairs                   |  |              | 4,842  |  |      |   | 8,701  | 
|Insurance claims              |  |              | 9,794  |  |      |   | 3,670  | 
|Helm Financial Corporation    |  |              | 2,100  |  |      |   | 3,600  | 
|Employees Union               |  |              | 828    |  |      |   | 682    | 
|Other                         |  |              | 3,696  |  |      |   | 1,352  | 
|                              |  |              |        |  |      |  
|                              |  | $            | 34,046 |  |      | $ | 30,155 | 
|                              |  |              |        |  |      |  

NOTE 5  MATERIALS AND SUPPLIES:


|                      |  |              |        |   |      |   |        |  
|--------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                      |  | December 31, |       
|                      |  |              |       
|                      |  | 2003         |        |   | 2004 |  
|                      |  |              |        |   |      |  
|General inventory     |  | $            | 15,742 |   |      | $ | 19,994 |  
|Locomotive fuel stock |  |              | 1,810  |   |      |   | 2,603  |  
|Inventory reserve     |  |              | (859   | ) |      |   | (859   | )
|                      |  |              |        |   |      |  
|                      |  | $            | 16,693 |   |      | $ | 21,738 |  
|                      |  |              |        |   |      |  

NOTE 6  OTHER CURRENT ASSETS:


|                           |  |              |        |  |      |   |       | 
|-------------------------- |  | ------------ | ------ |  | ---- | - | ----- | 
|                           |  | December 31, |       
|                           |  |              |       
|                           |  | 2003         |        |  | 2004 |  
|                           |  |              |        |  |      |  
|Prepaid expenses           |  | $            | 4,815  |  |      | $ | 3,413 | 
|Advance to suppliers       |  |              | 5,602  |  |      |   | 1,623 | 
|Prepaid insurance premiums |  |              | 2,673  |  |      |   | 2,000 | 
|                           |  |              |        |  |      |  
|                           |  | $            | 13,090 |  |      | $ | 7,036 | 
|                           |  |              |        |  |      |  

F-55



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE 7  CONCESSION RIGHTS AND RELATED
ASSETS:








|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |       |           |  |  |      
|---------------------- |  | ------------- | --------- |  | --------- | - | ------------- | ------------ |  | --------- | ------------ |  |  | ----- | --------- |  |  | -----
|                       |  | 2004         
|                       |  |              
|                       |  | Balance at    |           |  |           |   | Balance at    |              |  |          
|                       |  | Beginning of  |           |  |           |   | End of        |              |  |          
|                       |  | Year  Net of |           |  |           |   | Year  Net of |              |  | Estimated
|                       |  | Accumulated   |           |  |           |   | Accumulated   |              |  | Useful   
|                       |  | Amortization  |           |  | Disposals |   |               | Amortization |  |           | Amortization |  |  | Lives
|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |      
|Land                   |  | $             | 115,105   |  |           |   |               |              |  | $         | 2,648        |  |  | $     | 112,457   |  |  | 50   
|Buildings              |  |               | 25,516    |  |           |   |               |              |  |           | 1,162        |  |  |       | 24,354    |  |  | 27-30
|Bridges                |  |               | 63,433    |  |           |   |               |              |  |           | 1,822        |  |  |       | 61,611    |  |  | 41   
|Tunnels                |  |               | 78,621    |  |           |   |               |              |  |           | 2,358        |  |  |       | 76,263    |  |  | 40   
|Rail                   |  |               | 232,617   |  |           | $ | 550           |              |  |           | 10,294       |  |  |       | 221,773   |  |  | 29   
|Concrete and wood ties |  |               | 95,331    |  |           |   | 725           |              |  |           | 4,757        |  |  |       | 89,849    |  |  | 27   
|Yards                  |  |               | 86,587    |  |           |   |               |              |  |           | 2,996        |  |  |       | 83,591    |  |  | 35   
|Ballast                |  |               | 77,619    |  |           |   | 2,393         |              |  |           | 3,891        |  |  |       | 71,335    |  |  | 27   
|Grading                |  |               | 338,082   |  |           |   |               |              |  |           | 7,779        |  |  |       | 330,303   |  |  | 50   
|Culverts               |  |               | 10,244    |  |           |   |               |              |  |           | 718          |  |  |       | 9,526     |  |  | 21   
|Signals                |  |               | 1,057     |  |           |   |               |              |  |           | 55           |  |  |       | 1,002     |  |  | 26   
|Other                  |  |               | 50,005    |  |           |   |               |              |  |           | 1,152        |  |  |       | 48,853    |  |  | 5-50 
|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |      
|                       |  | $             | 1,174,217 |  |           | $ | 3,668         |              |  | $         | 39,632       |  |  | $     | 1,130,917 |  |  |      
|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |      

F-56



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |       |           |  |  |      
|---------------------- |  | ------------- | --------- |  | --------- | - | ------------- | ------------ |  | --------- | ------------ |  |  | ----- | --------- |  |  | -----
|                       |  | 2003         
|                       |  |              
|                       |  | Balance at    |           |  |           |   | Balance at    |              |  |          
|                       |  | Beginning of  |           |  |           |   | End of        |              |  |          
|                       |  | Year  Net of |           |  |           |   | Year  Net of |              |  | Estimated
|                       |  | Accumulated   |           |  |           |   | Accumulated   |              |  | Useful   
|                       |  | Amortization  |           |  | Disposals |   |               | Amortization |  |           | Amortization |  |  | Lives
|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |      
|Land                   |  | $             | 117,753   |  |           |   |               |              |  | $         | 2,648        |  |  | $     | 115,105   |  |  | 50   
|Buildings              |  |               | 26,678    |  |           |   |               |              |  |           | 1,162        |  |  |       | 25,516    |  |  | 27-30
|Bridges                |  |               | 65,255    |  |           |   |               |              |  |           | 1,822        |  |  |       | 63,433    |  |  | 41   
|Tunnels                |  |               | 80,979    |  |           |   |               |              |  |           | 2,358        |  |  |       | 78,621    |  |  | 40   
|Rail                   |  |               | 242,997   |  |           |   |               |              |  |           | 10,380       |  |  |       | 232,617   |  |  | 29   
|Concrete and wood ties |  |               | 100,592   |  |           |   |               |              |  |           | 5,261        |  |  |       | 95,331    |  |  | 27   
|Yards                  |  |               | 89,582    |  |           |   |               |              |  |           | 2,995        |  |  |       | 86,587    |  |  | 35   
|Ballast                |  |               | 82,546    |  |           |   | 200           |              |  |           | 4,727        |  |  |       | 77,619    |  |  | 27   
|Grading                |  |               | 345,861   |  |           |   |               |              |  |           | 7,779        |  |  |       | 338,082   |  |  | 50   
|Culverts               |  |               | 10,962    |  |           |   |               |              |  |           | 718          |  |  |       | 10,244    |  |  | 21   
|Signals                |  |               | 1,112     |  |           |   |               |              |  |           | 55           |  |  |       | 1,057     |  |  | 26   
|Other                  |  |               | 51,170    |  |           |   |               |              |  |           | 1,165        |  |  |       | 50,005    |  |  | 5-50 
|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |      
|                       |  | $             | 1,215,487 |  |           | $ | 200           |              |  | $         | 41,070       |  |  | $     | 1,174,217 |  |  |      
|                       |  |               |           |  |           |   |               |              |  |           |              |  |  |      





F-57



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE 8  PROPERTY, MACHINERY AND
EQUIPMENT:




|                             |  |               |         |  |           |   |              |           |  |           |        |               |  |         |             |   |              |       |        |              |  |   |         |  |  |   |         |  |  |      
|---------------------------- |  | ------------- | ------- |  | --------- | - | ------------ | --------- |  | --------- | ------ | ------------- |  | ------- | ----------- | - | ------------ | ----- | ------ | ------------ |  | - | ------- |  |  | - | ------- |  |  | -----
|                             |  | 2004         
|                             |  |              
|                             |  | Balance at    |         |  |           |   | Balance at   |           |  |          
|                             |  | Beginning of  |         |  |           |   | End of       |           |  | Estimated
|                             |  | Year  Net of |         |  |           |   | Fixed(1)     |           |  |           |        | Year  Net of |  |         | Useful     
|                             |  | Accumulated   |         |  |           |   | Transfer and |           |  | Asset     |        |               |  |         | Accumulated |   |              | Lives
|                             |  | Depreciation  |         |  | Additions |   |              | Disposals |  |           | Others |               |  | Mexrail |             |   | Depreciation |       |        | Depreciation |  |   | (Years)
|                             |  |               |         |  |           |   |              |           |  |           |        |               |  |         |             |   |              |       |        |              |  |   |        
|Locomotives                  |  | $             | 100,035 |  |           |   |              |           |  |           |        |               |  |         |             |   |              | $     | 153    |              |  | $ | 11,610  |  |  | $ | 88,272  |  |  | 14   
|Freight cars                 |  |               | 57,402  |  |           |   |              |           |  | $         | 84     |               |  | $       | 395         |   |              |       | 2,685  |              |  |   | 4,679   |  |  |   | 50,349  |  |  | 12-16
|Machinery of workshop        |  |               | 5,448   |  |           | $ | 28           |           |  |           |        |               |  |         |             |   |              |       | 81     |              |  |   | 1,948   |  |  |   | 3,447   |  |  | 8    
|Machinery of road            |  |               | 20,190  |  |           |   | 57           |           |  |           | 3      |               |  |         | 4,824       |   |              |       | 357    |              |  |   | 2,139   |  |  |   | 22,572  |  |  | 14   
|Terminal and other equipment |  |               | 49,361  |  |           |   | 1,312        |           |  |           | 1,129  |               |  |         | 6,965       |   |              |       | 4,974  |              |  |   | 4,103   |  |  |   | 47,432  |  |  | 1-15 
|Track Improvement            |  |               | 276,003 |  |           |   | 12,554       |           |  |           |        |               |  |         | 17,514      |   |              |       | 36,672 |              |  |   | 10,833  |  |  |   | 258,566 |  |  | 15-48
|Buildings                    |  |               | 5,977   |  |           |   | 30           |           |  |           |        |               |  |         | (95         | ) |              |       | 845    |              |  |   | 191     |  |  |   | 4,876   |  |  | 20   
|Overhaul                     |  |               | 44,807  |  |           |   | 7,241        |           |  |           |        |               |  |         |             |   |              |       |        |              |  |   | 11,368  |  |  |   | 40,680  |  |  | 8    
|                             |  |               |         |  |           |   |              |           |  |           |        |               |  |         |             |   |              |       |        |              |  |   |        
|                             |  |               | 559,223 |  |           |   | 21,222       |           |  |           | 1,216  |               |  |         | 29,603      |   |              |       | 45,767 |              |  |   | 46,871  |  |  |   | 516,194 |  |  |      
|Land(2)                      |  |               | 37,427  |  |           |   | 25           |           |  |           |        |               |  |         |             |   |              |       | 10,545 |              |  |   |         |  |  |   | 26,907  |  |  |      
|Construction in progress     |  |               | 35,781  |  |           |   | 19,896       |           |  |           |        |               |  |         | (29,603     | ) |              |       | 10,506 |              |  |   |         |  |  |   | 15,568  |  |  |      
|                             |  |               |         |  |           |   |              |           |  |           |        |               |  |         |             |   |              |       |        |              |  |   |        
|                             |  | $             | 632,431 |  |           | $ | 41,143       |           |  | $         | 1,216  |               |  | $       |            |   |              | $     | 66,818 |              |  | $ | 46,871  |  |  | $ | 558,669 |  |  |      
|                             |  |               |         |  |           |   |              |           |  |           |        |               |  |         |             |   |              |       |        |              |  |   |        






|    |                                                                                                 
|--- | ------------------------------------------------------------------------------------------------
|(1) | Effect of deconsolidation of Mexrail as a result of sale to KCS
    (see Note 1).               
|   
|(2) | Includes land under finance lease amounting to $3.0 and $3.0 in
    2003 and 2004, respectively,

|                             |  |               |         |  |           |   |               |           |  |           |        |             |  |              |         |   |              |   |        |         |  |   |         |  |  |      
|---------------------------- |  | ------------- | ------- |  | --------- | - | ------------- | --------- |  | --------- | ------ | ----------- |  | ------------ | ------- | - | ------------ | - | ------ | ------- |  | - | ------- |  |  | -----
|                             |  | 2003         
|                             |  |              
|                             |  | Balance at    |         |  |           |   | Balance at    |           |  |          
|                             |  | Beginning of  |         |  |           |   | End of        |           |  | Estimated
|                             |  | Year  Net of |         |  |           |   | Year  Net of |           |  | Useful   
|                             |  | Accumulated   |         |  |           |   | Transfer and  |           |  |           |        | Accumulated |  |              | Lives  
|                             |  | Depreciation  |         |  | Additions |   |               | Disposals |  |           | Others |             |  | Depreciation |         |   | Depreciation |   |        | (Years)
|                             |  |               |         |  |           |   |               |           |  |           |        |             |  |              |         |   |              |   |        |        
|Locomotives                  |  | $             | 111,644 |  |           |   |               |           |  |           |        |             |  |              |         |   |              | $ | 11,609 |         |  | $ | 100,035 |  |  | 14   
|Freight cars                 |  |               | 66,023  |  |           | $ | 122           |           |  | $         | 3,356  |             |  |              |         |   |              |   | 5,387  |         |  |   | 57,402  |  |  | 12-16
|Machinery of workshop        |  |               | 7,000   |  |           |   | 5             |           |  |           |        |             |  | $            | 387     |   |              |   | 1,944  |         |  |   | 5,448   |  |  | 8    
|Machinery of road            |  |               | 21,712  |  |           |   | 310           |           |  |           |        |             |  |              | 78      |   |              |   | 1,910  |         |  |   | 20,190  |  |  | 14   
|Terminal and other equipment |  |               | 35,528  |  |           |   | 1,212         |           |  |           | 177    |             |  |              | 17,951  |   |              |   | 5,153  |         |  |   | 49,361  |  |  | 1-15 
|Track improvement            |  |               | 234,769 |  |           |   | 27,391        |           |  |           |        |             |  |              | 22,939  |   |              |   | 9,096  |         |  |   | 276,003 |  |  | 15-48
|Buildings                    |  |               | 5,368   |  |           |   | 820           |           |  |           | 34     |             |  |              |         |   |              |   | 177    |         |  |   | 5,977   |  |  | 20   
|Overhaul                     |  |               | 45,246  |  |           |   | 9,758         |           |  |           |        |             |  |              |         |   |              |   | 10,197 |         |  |   | 44,807  |  |  | 8    
|                             |  |               |         |  |           |   |               |           |  |           |        |             |  |              |         |   |              |   |        |        
|                             |  |               | 527,290 |  |           |   | 39,618        |           |  |           | 3,567  |             |  |              | 41,355  |   |              |   | 45,473 |         |  |   | 559,223 |  |  |      
|Land                         |  |               | 37,607  |  |           |   | 18            |           |  |           | 198    |             |  |              |         |   |              |   |        |         |  |   | 37,427  |  |  |      
|Construction in progress     |  |               | 44,470  |  |           |   | 33,485        |           |  |           |        |             |  |              | (42,174 | ) |              |   |        |         |  |   | 35,781  |  |  |      
|                             |  |               |         |  |           |   |               |           |  |           |        |             |  |              |         |   |              |   |        |        
|                             |  | $             | 609,367 |  |           | $ | 73,121        |           |  | $         | 3,765  |             |  | $            | (819    | ) |              | $ | 45,473 |         |  | $ | 632,431 |  |  |      
|                             |  |               |         |  |           |   |               |           |  |           |        |             |  |              |         |   |              |   |        |        

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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






NOTE 9  FINANCING:




|                                               |  |              |         |  |            |   |        | 
|---------------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------ | 
|                                               |  | December 31, |        
|                                               |  |              |        
|                                               |  | 2003         |         |  | 2004       |  
|                                               |  |              |         |  |            |  
|                                               |  | Net          |         |  | Net        |  
|                                               |  | Borrowings   |         |  | Borrowings |  
|                                               |  |              |         |  |            |  
|Short-term debt:                               |  |              |         |  |            |   |        | 
|Commercial paper(1)                            |  | $            | 84,407  |  |            |   |        | 
|Current portion of long-term debt:             |  |              |         |  |            |   |        | 
|First Amended and Restated Credit Agreement(3) |  |              |         |  |            | $ | 64,762 | 
|Term loan facility(2)                          |  |              | 108,333 |  |            |   |        | 
|Interest payable                               |  |              | 3,912   |  |            |   | 4,073  | 
|                                               |  |              |         |  |            |  
|                                               |  | $            | 196,652 |  |            | $ | 68,835 | 
|                                               |  |              |         |  |            |  

|                                               |  |              |         |  |            |   |         | 
|---------------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------- | 
|                                               |  | December 31, |        
|                                               |  |              |        
|                                               |  | 2003         |         |  | 2004       |  
|                                               |  |              |         |  |            |  
|                                               |  | Net          |         |  | Net        |  
|                                               |  | Borrowings   |         |  | Borrowings |  
|                                               |  |              |         |  |            |  
|Long-term debt:                                |  |              |         |  |            |   |         | 
|Senior notes due 2007(4)                       |  | $            | 150,000 |  |            | $ | 150,000 | 
|Senior discount debentures(5)                  |  |              | 437,254 |  |            |   | 438,598 | 
|Senior notes due 2012(6)                       |  |              | 157,935 |  |            |   | 161,824 | 
|First Amended and Restated Credit Agreement(3) |  |              |         |  |            |   | 66,237  | 
|                                               |  |              |         |  |            |  
|                                               |  | $            | 745,189 |  |            | $ | 816,659 | 
|                                               |  |              |         |  |            |  



|    |                 
|--- | ----------------
|(1) | Commercial paper





|    |                   
|--- | ------------------
|(2) | Term loan facility



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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                         
|--- | --------------------------------------------------------
|(3) | First Amended and Restated Credit Agreement due
    2006











|    |                      
|--- | ---------------------
|(4) | Senior notes due 2007







|    |                                   
|--- | ----------------------------------
|(5) | Senior discount debentures (SDD)







|    |                      
|--- | ---------------------
|(6) | Senior notes due 2012





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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |          
| | ---------
| | Covenants





|                    |  |              |         |  |            |   |         | 
|------------------- |  | ------------ | ------- |  | ---------- | - | ------- | 
|                    |  | December 31, |        
|                    |  |              |        
|                    |  | 2003         |         |  | 2004       |  
|                    |  |              |         |  |            |  
|                    |  | Net          |         |  | Net        |  
|                    |  | Borrowings   |         |  | Borrowings |  
|                    |  |              |         |  |            |  
|2006                |  |              |         |  |            | $ | 66,237  | 
|2007                |  | $            | 150,000 |  |            |   | 150,000 | 
|2008                |  |              |         |  |            |   |         | 
|2009                |  |              | 595,189 |  |            |   | 438,598 | 
|2010 and thereafter |  |              |         |  |            |   | 161,824 | 
|                    |  |              |         |  |            |  
|                    |  | $            | 745,189 |  |            | $ | 816,659 | 
|                    |  |              |         |  |            |  

NOTE 10  FINANCIAL
INSTRUMENTS:




| |                    
| | -------------------
| | Fuel swap contracts









| |                           
| | --------------------------
| | Foreign exchange contracts





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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














| |                                    
| | -----------------------------------
| | Fair value of financial instruments







| |                          
| | -------------------------
| | Foreign currency balances



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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE 11  BALANCES AND TRANSACTIONS WITH
RELATED PARTIES:


|                                                        |  |              |       |  |      |   |        | 
|------------------------------------------------------- |  | ------------ | ----- |  | ---- | - | ------ | 
|                                                        |  | December 31, |      
|                                                        |  |              |      
|                                                        |  | 2003         |       |  | 2004 |  
|                                                        |  |              |       |  |      |  
|(1)Accounts receivable:                                 |  |              |       |  |      |   |        | 
|Terminal Ferroviaria del Valle de México, S. A. de C. V |  | $            | 1,550 |  |      |   |        | 
|KCS  receivable related to Mexrail(2)                  |  |              |       |  |      | $ | 31,398 | 
|Other Grupo TMMs subsidiaries                          |  |              |       |  |      |   | 171    | 
|                                                        |  |              |       |  |      |  
|                                                        |  | $            | 1,550 |  |      | $ | 31,569 | 
|                                                        |  |              |       |  |      |  
|(1) Accounts payable:                                   |  |              |       |  |      |   |        | 
|KCS                                                     |  | $            | 4,345 |  |      | $ | 746    | 
|Terminal Ferroviaria del Valle de México, S. A. de C. V |  |              |       |  |      |   | 3,068  | 
|Other Grupo TMMs subsidiaries                          |  |              | 1,805 |  |      |   |        | 
|Tex-Mex Railway                                         |  |              |       |  |      |   | 93     | 
|                                                        |  |              |       |  |      |  
|                                                        |  | $            | 6,150 |  |      | $ | 3,907  | 
|                                                        |  |              |       |  |      |  






|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The accounts receivable and payable due from or due to related
    parties were driven by the services disclosed in the
    transactions with related parties.
|   
|(2) | Account receivable related to the remaining 49% interest in
    Mexrail including the value of the call option.                                               



|                           |  |                         |        |   |      |   |        |      |  |   |         |  
|-------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                           |  | Year Ended December 31, |       
|                           |  |                         |       
|                           |  | 2002                    |        |   | 2003 |   |        | 2004 | 
|                           |  |                         |        |   |      |   |        |      | 
|Transportation revenue     |  | $                       | 10,375 |   |      | $ | 13,784 |      |  | $ | 8,148   |  
|                           |  |                         |        |   |      |   |        |      | 
|Terminal service           |  | $                       | (9,933 | ) |      | $ | (8,605 | )    |  | $ | (10,713 | )
|                           |  |                         |        |   |      |   |        |      | 
|Car lease                  |  | $                       | (1,947 | ) |      | $ | (2,256 | )    |  | $ | (2,482  | )
|                           |  |                         |        |   |      |   |        |      | 
|Locomotive and car repair  |  | $                       | (49    | ) |      | $ | 8      |      |  | $ | 123     |  
|                           |  |                         |        |   |      |   |        |      | 
|Management fee(a)          |  | $                       | (2,500 | ) |      | $ | (2,500 | )    |  | $ | (2,500  | )
|                           |  |                         |        |   |      |   |        |      | 
|Locomotive equipment lease |  | $                       | (1,834 | ) |      | $ | 2,127  |      |  | $ | 3,638   |  
|                           |  |                         |        |   |      |   |        |      | 
|Other                      |  | $                       | 295    |   |      | $ | 299    |      |  | $ | 448     |  
|                           |  |                         |        |   |      |   |        |      | 





|    |                                        
|--- | ---------------------------------------
|(a) | Grupo TMM management services agreement



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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                       
|--- | ----------------------------------------------------------------------
|(a) | KCS Transportation Company (KCSTC)
    management services agreement





| |           
| | ----------
| | Amendments



NOTE 12  PROVISION AND ACCRUED
EXPENSES:




| |           
| | ----------
| | Provisions

|                                         |                         |               |       |         |            |   |       |         |   |   |       |         |  
|---------------------------------------- | ----------------------- | ------------- | ----- | ------- | ---------- | - | ----- | ------- | - | - | ----- | ------- | -
|                                         |                         | Insurance     |       |         |            |   |      
|                                         |                         | Claims from   |       |         |            |   |      
|                                         |                         | Customers for |       |         |            |   |      
|                                         |                         | Merchandise   |       |         |            |   |      
|                                         |                         | Damages       |       |         |            |   |      
|                                         |                         | During the    |       |         | Other      |   |       |        
|                                         |                         | Freight       |       |         | Provisions |   |       | Total   |  
|                                         |                         |               |       |         |            |   |       |         |  
|At January 1, 2004                       |                         | $             | 2,512 |         |            | $ | 1,980 |         |   | $ | 4,492 |        
|Charged to consolidated income statement |                         |               |       |         |            |   |       |         |   |   |       |        
|                                         | Additional provision    |               |       | 84,102  |            |   |       | 10,625  |   |   |       | 94,727  |  
|                                         | Unused amounts reversed |               |       |         |            |   |       | (1,318  | ) |   |       | (1,318  | )
|                                         | Used during the year    |               |       | (81,868 | )          |   |       | (10,955 | ) |   |       | (92,823 | )
|                                         |                         |               |       |         |            |   |       |         |  
|At 31 December 2004                      |                         | $             | 4,746 |         |            | $ | 332   |         |   | $ | 5,078 |        
|                                         |                         |               |       |         |            |   |       |         |  

|                                         |                      |               |       |        |            |   |       |         |   |   |       |         |  
|---------------------------------------- | -------------------- | ------------- | ----- | ------ | ---------- | - | ----- | ------- | - | - | ----- | ------- | -
|                                         |                      | Insurance     |       |        |            |   |      
|                                         |                      | Claims from   |       |        |            |   |      
|                                         |                      | Customers for |       |        |            |   |      
|                                         |                      | Merchandise   |       |        |            |   |      
|                                         |                      | Damages       |       |        |            |   |      
|                                         |                      | During the    |       |        | Other      |   |       |        
|                                         |                      | Freight       |       |        | Provisions |   |       | Total   |  
|                                         |                      |               |       |        |            |   |       |         |  
|At January 1, 2003                       |                      | $             | 1,703 |        |            | $ | 1,788 |         |   | $ | 3,491 |        
|Charged to consolidated income statement |                      |               |       |        |            |   |       |         |   |   |       |        
|                                         | Additional provision |               |       | 5,778  |            |   |       | 11,049  |   |   |       | 16,827  |  
|                                         | Used during the year |               |       | (4,969 | )          |   |       | (10,857 | ) |   |       | (15,826 | )
|                                         |                      |               |       |        |            |   |       |         |  
|At 31 December 2003                      |                      | $             | 2,512 |        |            | $ | 1,980 |         |   | $ | 4,492 |        
|                                         |                      |               |       |        |            |   |       |         |  

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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accrued Expenses are summarized below:


|                                      |  |              |        |  |      |   |        | 
|------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                      |  | December 31, |       
|                                      |  |              |       
|                                      |  | 2003         |        |  | 2004 |  
|                                      |  |              |        |  |      |  
|Salaries and wages                    |  | $            | 8,397  |  |      | $ | 6,561  | 
|Purchased services                    |  |              | 18,179 |  |      |   | 12,337 | 
|Car repair and locomotive maintenance |  |              | 7,011  |  |      |   | 6,728  | 
|                                      |  |              |        |  |      |  
|                                      |  | $            | 33,587 |  |      | $ | 25,626 | 
|                                      |  |              |        |  |      |  
|Total provisions and accrued expenses |  | $            | 38,079 |  |      | $ | 30,704 | 
|                                      |  |              |        |  |      |  

NOTE 13  OTHER LONG-TERM
LIABILITIES:


|                   |  |              |        |  |      |   |        | 
|------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                   |  | December 31, |       
|                   |  |              |       
|                   |  | 2003         |        |  | 2004 |  
|                   |  |              |        |  |      |  
|Alstom Transportes |  | $            | 21,828 |  |      | $ | 13,867 | 
|Tax payable(1)     |  |              | 9,956  |  |      |   | 9,956  | 
|Seniority premium  |  |              | 847    |  |      |   | 1,037  | 
|Other              |  |              | 1,093  |  |      |   | 344    | 
|                   |  |              |        |  |      |  
|                   |  | $            | 33,724 |  |      | $ | 25,204 | 
|                   |  |              |        |  |      |  






|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(1) | Withholding tax payable in 2009 which is the maturity date for
    the senior discount debentures. (See Note 9).

NOTE 14  STOCKHOLDERS EQUITY:






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GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                      |  |                |            |  |                      |  |                  | 
|--------------------- |  | -------------- | ---------- |  | -------------------- |  | ---------------- | 
|                      |  | Number of      |            |  |                     
|                      |  | Shares (Fixed  |            |  | Number of Shares     | 
|                      |  | Portion of     |            |  | (Variable Portion of | 
|Stockholders          |  | Capital Stock) |            |  | Capital Stock)       | 
|                      |  |                |            |  |                      | 
|                      |  |                | Series A |  |                      |  | Series A       | 
|TMM Multimodal        |  |                | 25,500     |  |                      |  | 3,842,901        | 
|                      |  |                | Series B |  |                      |  | Sub-series B   | 
|Nafta                 |  |                | 24,500     |  |                      |  | 3,692,199        | 
|                      |  |                |            |  |                      |  | Sub-series L-2 | 
|TFM (treasury shares) |  |                |            |  |                      |  | 2,478,470        | 
|                      |  |                |            |  |                      | 
|Total                 |  |                | 50,000     |  |                      |  | 10,013,570       | 
|                      |  |                |            |  |                      | 











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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE 15  OTHER EXPENSES NET:


|                                            |  |              |         |   |      |   |         |      |  |   |        |  
|------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                            |  | December 31, |        
|                                            |  |              |        
|                                            |  | 2002         |         |   | 2003 |   |         | 2004 | 
|                                            |  |              |         |   |      |   |         |      | 
|Fees in VAT Lawsuit(1)                      |  | $            | (6,260  | ) |      | $ | (26,701 | )    |  | $ | (5,827 | )
|Loss on sale of property and equipment      |  |              | (5,030  | ) |      |   | (1,857  | )    |  |   | (65    | )
|Cost of property and equipment write off(2) |  |              | (1,867  | ) |      |   | (1,052  | )    |  |   | (3,639 | )
|Costs of locomotive sublease                |  |              | (1,256  | ) |      |   | (1,240  | )    |  |   | (1,138 | )
|Electric locomotive maintenance             |  |              | (2,428  | ) |      |   | (2,428  | )    |  |   | (958   | )
|Maintenance and electricity to catenary     |  |              | (1,884  | ) |      |   | (1,781  | )    |  |   | (966   | )
|Gain on Mexrail transaction                 |  |              |         |   |      |   |         |      |  |   | 7,355  |  
|Gain on sale of Hercules Mariscala Line     |  |              | 2,384   |   |      |   |         |      |  |   |        |  
|Recoverable income tax                      |  |              |         |   |      |   | 1,222   |      |  |   | 144    |  
|Other  Net                                 |  |              | (4,183  | ) |      |   | (1,827  | )    |  |   | (1,344 | )
|                                            |  |              |         |   |      |   |         |      | 
|                                            |  | $            | (20,524 | ) |      | $ | (35,664 | )    |  | $ | (6,438 | )
|                                            |  |              |         |   |      |   |         |      | 






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As a result of the resolution of the courts regarding the VAT
    claim, in which TFM won on August 13, 2003, TFM has paid to
    external lawyers handling the case on behalf of the Company,
    fees in accordance with the terms of the agreements. (See
    Note 17).
|   
|(2) | Property and equipment damaged in railroad repairs that is
    written off and replaced by new property and equipment.                                                                                                                                                    

NOTE 16  INCOME TAX, ASSET TAX AND
TAX LOSS CARRYFORWARDS:




| |           
| | ----------
| | Income tax







|                                 |  |                         |        |  |      |   |        |      |  |   |         |  
|-------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | -
|                                 |  | Year Ended December 31, |       
|                                 |  |                         |       
|                                 |  | 2002                    |        |  | 2003 |   |        | 2004 | 
|                                 |  |                         |        |  |      |   |        |      | 
|Current income tax expense       |  | $                       |       |  |      | $ | 10,763 |      |  | $ | 7,630   |  
|Deferred income tax expense      |  |                         | 30,233 |  |      |   | 22,127 |      |  |   | (22,824 | )
|                                 |  |                         |        |  |      |   |        |      | 
|Net income tax expense (benefit) |  | $                       | 30,233 |  |      | $ | 32,890 |      |  | $ | (15,194 | )
|                                 |  |                         |        |  |      |   |        |      | 

F-67



---



##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                 |  | Year Ended December 31, |        
|                                                                 |  |                         |        
|                                                                 |  | 2002                    |         |   | 2003 |   |         | 2004 | 
|                                                                 |  |                         |         |   |      |   |         |      | 
|Income (loss) before income tax                                  |  | $                       | 19,904  |   |      | $ | (28,203 | )    |  | $ | 8,443   |  
|                                                                 |  |                         |         |   |      |   |         |      | 
|Income tax at 35% in 2002 and 34% in 2003 and 33% in 2004        |  | $                       | 6,967   |   |      | $ | (9,589  | )    |  | $ | 2,786   |  
|(Decrease) increase resulting from:                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Effects of inflationary and devaluation components               |  |                         | (43,251 | ) |      |   | 15,347  |      |  |   | 18,949  |  
|Indexation of depreciation and amortization                      |  |                         | 48,117  |   |      |   | 30,154  |      |  |   | (18,329 | )
|Effects of inflation and remeasurement of tax loss carryforwards |  |                         | 14,281  |   |      |   | (9,222  | )    |  |   | (25,098 | )
|Non-deductible expenses                                          |  |                         | 2,128   |   |      |   | 578     |      |  |   | 453     |  
|Change in tax rates                                              |  |                         | (1,837  | ) |      |   | 2,992   |      |  |   | 4,226   |  
|Other  Net                                                      |  |                         | 3,828   |   |      |   | 2,630   |      |  |   | 1,819   |  
|                                                                 |  |                         |         |   |      |   |         |      | 
|Net deferred income tax expense (benefit)                        |  | $                       | 30,233  |   |      | $ | 32,890  |      |  | $ | (15,194 | )
|                                                                 |  |                         |         |   |      |   |         |      | 





|                                 |  |              |          |   |      |   |          |  
|-------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                 |  | December 31, |         
|                                 |  |              |         
|                                 |  | 2003         |          |   | 2004 |  
|                                 |  |              |          |   |      |  
|Tax-loss carryforwards           |  | $            | 478,947  |   |      | $ | 442,613  |  
|Inventories and provisions  Net |  |              | 20,597   |   |      |   | 29,188   |  
|Machinery and equipment          |  |              | (48,224  | ) |      |   | (32,540  | )
|Concession rights                |  |              | (367,949 | ) |      |   | (335,128 | )
|Other                            |  |              | (4,526   | ) |      |   | (3,263   | )
|                                 |  |              |          |   |      |  
|Net deferred income tax asset    |  | $            | 78,845   |   |      | $ | 100,870  |  
|                                 |  |              |          |   |      |  





| |          
| | ---------
| | Asset tax



F-68



---



##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                       
| | ----------------------
| | Tax loss carryforwards



|                         |  |                   |           |  |            |  |      | 
|------------------------ |  | ----------------- | --------- |  | ---------- |  | ---- | 
|                         |  | Inflation-Indexed |           |  |           
|                         |  | Amounts as of     |           |  |           
|                         |  | December 31,      |           |  | Year of    | 
|Year in Which Loss Arose |  | 2004              |           |  | Expiration | 
|                         |  |                   |           |  |            | 
|1997                     |  | $                 | 228,096   |  |            |  | 2046 | 
|1998                     |  |                   | 358,895   |  |            |  | 2046 | 
|1999                     |  |                   | 9,569     |  |            |  | 2046 | 
|2000                     |  |                   | 169,249   |  |            |  | 2046 | 
|2001                     |  |                   | 72,695    |  |            |  | 2046 | 
|2002                     |  |                   | 421,718   |  |            |  | 2012 | 
|2003                     |  |                   | 305,240   |  |            |  | 2046 | 
|                         |  |                   |           |  |            | 
|                         |  | $                 | 1,565,462 |  |            |  |      | 
|                         |  |                   |           |  |            | 

NOTE 17  COMMITMENTS AND
CONTINGENCIES:




| |             
| | ------------
| | Commitments:



| |                
| | ---------------
| | Concession duty





| |                          
| | -------------------------
| | Finance lease obligations





| |                             
| | ----------------------------
| | Locomotives operating leases



F-69



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |                 |         |  |      |   |         | 
|------------------------ |  | --------------- | ------- |  | ---- | - | ------- | 
|                         |  | At December 31, |        
|                         |  |                 |        
|Year Ending December 31, |  | 2003            |         |  | 2004 |  
|                         |  |                 |         |  |      |  
|2004                     |  | $               | 29,135  |  |      |   |         | 
|2005                     |  |                 | 29,095  |  |      | $ | 29,095  | 
|2006                     |  |                 | 29,095  |  |      |   | 29,095  | 
|2007                     |  |                 | 29,095  |  |      |   | 29,095  | 
|2008 and thereafter      |  |                 | 29,135  |  |      |   | 29,095  | 
|2009 and thereafter      |  |                 | 315,038 |  |      |   | 29,095  | 
|2010 and thereafter      |  |                 |         |  |      |   | 285,983 | 
|                         |  |                 |         |  |      |  
|                         |  | $               | 460,593 |  |      | $ | 431,458 | 
|                         |  |                 |         |  |      |  



| |                          
| | -------------------------
| | Railcars operating leases



|                         |  |                 |         |  |      |   |         | 
|------------------------ |  | --------------- | ------- |  | ---- | - | ------- | 
|                         |  | At December 31, |        
|                         |  |                 |        
|Year Ending December 31, |  | 2003            |         |  | 2004 |  
|                         |  |                 |         |  |      |  
|2004                     |  | $               | 31,930  |  |      |   |         | 
|2005                     |  |                 | 15,592  |  |      | $ | 33,871  | 
|2006                     |  |                 | 12,642  |  |      |   | 31,255  | 
|2007                     |  |                 | 10,433  |  |      |   | 27,139  | 
|2008                     |  |                 | 9,498   |  |      |   | 23,168  | 
|2009 and thereafter      |  |                 | 40,942  |  |      |   | 18,233  | 
|2010 and thereafter      |  |                 |         |  |      |   | 60,107  | 
|                         |  |                 |         |  |      |  
|                         |  | $               | 121,037 |  |      | $ | 193,773 | 
|                         |  |                 |         |  |      |  



| |                                   
| | ----------------------------------
| | Locomotives maintenance agreements





| |                                                   
| | --------------------------------------------------
| | Track maintenance and rehabilitation
    agreement





| |                        
| | -----------------------
| | Fuel purchase agreement



F-70



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                               
| | ------------------------------
| | Fuel freight service agreement



|     |  |         |            |  |         |  |            | 
|---- |  | ------- | ---------- |  | ------- |  | ---------- | 
|     |  | Minimum |            |  | Maximum | 
|     |  |         |            |  |         | 
|2004 |  |         | Ps  98,769 |  |         |  | Ps 246,922 | 
|2005 |  |         | 98,769     |  |         |  | 246,922    | 
|2006 |  |         | 65,756     |  |         |  | 164,390    | 
|     |  |         |            |  |         | 
|     |  |         | Ps 263,294 |  |         |  | Ps 658,234 | 
|     |  |         |            |  |         | 



| |               
| | --------------
| | Contingencies:



| |                           
| | --------------------------
| | A) Value Added Tax Lawsuit









F-71



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


















| |                              
| | -----------------------------
| | B) The Mexican Government Put



F-72



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | 1. Register the TFM shares with the BMV;                                                                                       
|
| | 2. Receive the approval of the CNBV to exercise the put;                                                                       
|
| | 3. Request that TFM provide all information necessary to
    place the Governments equity stake in the equity
    markets; and
|
| | 4. Place the number of TFM shares it is able to in the
    equity markets once all necessary approvals are granted.            











F-73



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                                                  
| | -----------------------------------------------------------------
| | C) Ferrocarril Mexicano, S. A. de C. V.
    (Ferromex) disputes











F-74



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                     
| | ------------------------------------
| | D) Dispute between Grupo TMM and KCS













F-75



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                      
| | -------------------------------------
| | E) Other Legal Disputes involving KCS







| |                           
| | --------------------------
| | F) Other legal proceedings



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company is a party to various other legal proceedings and
    administrative actions, all of which are of an ordinary or
    routine nature and incidental to its operations. Although it is
    impossible to predict the outcome of any legal proceeding, in
    the opinion of the Companys Management, such proceedings
    and actions should not, individually or in the aggregate, have a
    material adverse effect on the Companys financial
    condition, results of operations or liquidity.
|
| |  | The Company has significant transactions and relationships with
    related parties. Because of these relationships, in accordance
    with the Mexican Income Tax Law, the Company must obtain a
    transfer pricing study that confirms that the terms of these
    transactions are the same as those that would result from
    transactions among wholly unrelated parties. The Company has the
    transfer pricing study from 2003 and is in the process of
    updating such report.                  
|
| |  | In January 2004, TFM and Arrendadora TFM assumed joint and
    several responsibility for the prepayment of federal taxes.                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The SAT, which is empowered to verify tax results for the last
    five years, is performing a review of the TFMs 2000 and
    2001 tax results. At present no final conclusion has been
    reached from the tax authorities; however, the Company considers
    that no material adverse effect would result from these reviews.                                                                                                                                                                            

NOTE 18  RECONCILIATION OF DIFFERENCES
BETWEEN IFRS AND U.S. GAAP:




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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                
| | -------------------------------
| | a) Reconciliation of net income

|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | ------------ | --- | ----------------------- | ---- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                          |  |              |     | Year Ended December 31, |     
|                                                                          |  | Reference to |     |                         |      |  
|                                                                          |  | Subnote d.   |     |                         | 2002 |   |         | 2003 |  |   | 2004    |  
|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |  
|Net income (loss) under IFRS                                              |  |              |     |                         |      | $ | (7,988  | )    |  | $ | (48,939 | ) |  | $ | 18,568  |  
|Deferred income tax (expense) benefit                                     |  |              | i   |                         |      |   | 121,738 |      |  |   | 84,379  |   |  |   | (19,904 | )
|Deferred employees statutory profit sharing expense                      |  |              | i   |                         |      |   | 25,792  |      |  |   | 11,528  |   |  |   | 6,556   |  
|Reversal of capitalized IFRS deferred charges                             |  |              | ii  |                         |      |   | (231    | )    |  |   |         |   |  |   | (494    | )
|Reversal of IFRS amortization of deferred charges                         |  |              | ii  |                         |      |   | 933     |      |  |   | 34      |   |  |   | 171     |  
|Depreciation of the purchase price partial step up related to
    Mexrail |  |              |     |                         |      |   | (459    | )    |  |   | (612    | ) |  |   | (357    | )
|Adjustment to carrying value of Mexrail due to disposition                |  |              | iii |                         |      |   |         |      |  |   |         |   |  |   | (19,576 | )
|Effect of U.S. GAAP adjustments on minority interest                      |  |              |     |                         |      |   | (29,601 | )    |  |   | (19,076 | ) |  |   | 6,690   |  
|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |  
|Net income (loss) under U.S. GAAP                                         |  |              |     |                         |      | $ | 110,184 |      |  | $ | 27,314  |   |  | $ | (8,346  | )
|                                                                          |  |              |     |                         |      |   |         |      |  |   |         |  



| |                                              
| | ---------------------------------------------
| | b) Reconciliation of stockholders
    equity

|                                                     |  |              |     |              |      |   |         |      |  |   |         |  
|---------------------------------------------------- |  | ------------ | --- | ------------ | ---- | - | ------- | ---- |  | - | ------- | -
|                                                     |  |              |     | December 31, |     
|                                                     |  | Reference to |     |              |      |  
|                                                     |  | Subnote d.   |     |              | 2003 |   |         | 2004 | 
|                                                     |  |              |     |              |      |   |         |      | 
|Stockholders equity under IFRS                      |  |              |     |              |      | $ | 663,405 |      |  | $ | 681,973 |  
|Deferred income tax                                  |  |              | i   |              |      |   | 117,338 |      |  |   | 97,434  |  
|Deferred employees statutory profit sharing         |  |              | i   |              |      |   | 50,221  |      |  |   | 56,777  |  
|Deferred charges, net                                |  |              | ii  |              |      |   | (197    | )    |  |   | (520    | )
|Effect of partial step up of Mexrail, net            |  |              | iii |              |      |   | 19,933  |      |  |   |        |  
|Effect of U.S. GAAP adjustments on minority interest |  |              |     |              |      |   | (37,514 | )    |  |   | (30,824 | )
|                                                     |  |              |     |              |      |   |         |      | 
|Stockholders equity under U.S. GAAP                 |  |              |     |              |      | $ | 813,186 |      |  | $ | 804,840 |  
|                                                     |  |              |     |              |      |   |         |      | 



| |                                                                    
| | -------------------------------------------------------------------
| | c) Analysis of changes in stockholders
    equity under U.S. GAAP:

|                                 |  |              |         |  |      |   |         |  
|-------------------------------- |  | ------------ | ------- |  | ---- | - | ------- | -
|                                 |  | December 31, |        
|                                 |  |              |        
|                                 |  | 2003         |         |  | 2004 |  
|                                 |  |              |         |  |      |  
|Balance at beginning of the year |  | $            | 785,872 |  |      | $ | 813,186 |  
|Net income (loss) for the year   |  |              | 27,314  |  |      |   | (8,346  | )
|                                 |  |              |         |  |      |  
|Balance at end of the year       |  | $            | 813,186 |  |      | $ | 804,840 |  
|                                 |  |              |         |  |      |  



| |                                                                      
| | ---------------------------------------------------------------------
| | d) Significant quantified differences between IFRS
    and U.S. GAAP:



| |                                                                   
| | ------------------------------------------------------------------
| | i. Deferred income tax and employees statutory
    profit sharing



F-77



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|                                  |  |                 |          |   |                         |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------- |  | --------------- | -------- | - | ----------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                  |  | Deferred Income |          |   | Deferred Profit Sharing |  
|                                  |  | Tax Assets      |          |   | Tax Assets              |  
|                                  |  |                 |          |   |                         |  
|                                  |  | 2003            |          |   | 2004                    |   |         | 2003 |  |   | 2004    |  
|                                  |  |                 |          |   |                         |   |         |      |  |   |         |  
|Amounts recorded under IFRS       |  | $               | 78,845   |   |                         | $ | 100,870 |      |  |   |         |   |  |   |         |  
|Amount determined under U.S. GAAP |  |                 | 196,183  |   |                         |   | 198,304 |      |  | $ | 50,221  |   |  | $ | 56,777  |  
|                                  |  |                 |          |   |                         |   |         |      |  |   |         |  
|Net difference                    |  | $               | (117,338 | ) |                         | $ | (97,434 | )    |  | $ | (50,221 | ) |  | $ | (56,777 | )
|                                  |  |                 |          |   |                         |   |         |      |  |   |         |  





| |                               
| | ------------------------------
| | ii. Deferred financing charges





F-78



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                         
| | ------------------------
| | iii. Mexrail transaction









|        |  |      |        |  |      |   |        | 
|------- |  | ---- | ------ |  | ---- | - | ------ | 
|        |  | 2003 |        |  | 2004 |  
|        |  |      |        |  |      |  
|IFRS    |  | $    | 14,565 |  |      | $ | 31,398 | 
|US GAAP |  |      | 34,141 |  |      |   | 31,398 | 
|        |  |      |        |  |      |  
|        |  | $    | 19,576 |  |      |   |       | 
|        |  |      |        |  |      |  





| |                                                
| | -----------------------------------------------
| | e) Other U.S. GAAP presentation
    differences



| |                      
| | ---------------------
| | i. Earnings per share





| |                                            
| | -------------------------------------------
| | ii. Intangible assets and long-lived assets



F-79



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                              
| | -----------------------------
| | iii. Deferred financing costs





| |                                           
| | ------------------------------------------
| | iv. Association in Participation Agreement









| |                                                                                     
| | ------------------------------------------------------------------------------------
| | f) Effect of recently issued accounting standards
    as they relate to the Company.





F-80



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                                                    
| | ---------------------------------------------------
| | g) Consolidations of Variable Interest
    Entities



F-81



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                                                                
| | -------------------------------------------------------------------------------
| | h) Condensed combined and consolidated balance
    sheets and income statements



|                                                                  |                                            |                             |           |           |      |   |           |           | 
|----------------------------------------------------------------- | ------------------------------------------ | --------------------------- | --------- | --------- | ---- | - | --------- | --------- | 
|                                                                  |                                            | Condensed Combined and      |          
|                                                                  |                                            | Consolidated Balance Sheets |          
|                                                                  |                                            | December 31,                |          
|                                                                  |                                            |                             |          
|                                                                  |                                            | 2003                        |           |           | 2004 |  
|                                                                  |                                            |                             |           |           |      |  
|Total current assets                                              |                                            | $                           | 221,815   |           |      | $ | 252,659   |          
|Long-term account receivable                                      |                                            |                             | 1,350     |           |      |   | 1,233     |          
|Concession rights and related assets  Net                        |                                            |                             | 1,174,217 |           |      |   | 1,130,917 |          
|Property, machinery and equipment  Net                           |                                            |                             | 660,294   |           |      |   | 558,669   |          
|Deferred income taxes and employees statutory profit
    sharing |                                            |                             | 238,474   |           |      |   | 255,081   |          
|Other non-current assets                                          |                                            |                             | 37,514    |           |      |   | 36,403    |          
|                                                                  |                                            |                             |           |           |      |  
|                                                                  | Total assets                               |                             | $         | 2,333,664 |      |   | $         | 2,234,962 | 
|                                                                  |                                            |                             |           |           |      |  
|Total short-term liabilities                                      |                                            | $                           | 358,829   |           |      | $ | 211,402   |          
|Total long-term liabilities                                       |                                            |                             | 925,348   |           |      |   | 984,087   |          
|                                                                  |                                            |                             |           |           |      |  
|                                                                  | Total liabilities                          |                             |           | 1,284,177 |      |   |           | 1,195,489 | 
|                                                                  |                                            |                             |           |           |      |  
|Minority interest                                                 |                                            |                             | 236,301   |           |      |   | 234,633   |          
|                                                                  |                                            |                             |           |           |      |  
|Capital stock                                                     |                                            |                             | 807,008   |           |      |   | 807,008   |          
|Treasury Shares                                                   |                                            |                             | (204,904  | )         |      |   | (204,904  | )        
|Effect on purchase of subsidiary shares                           |                                            |                             | (17,115   | )         |      |   | (17,115   | )        
|Retained earnings                                                 |                                            |                             | 228,197   |           |      |   | 219,851   |          
|                                                                  |                                            |                             |           |           |      |  
|                                                                  | Total stockholders equity                 |                             |           | 813,186   |      |   |           | 804,840   | 
|                                                                  |                                            |                             |           |           |      |  
|                                                                  | Total liabilities and stockholders equity |                             | $         | 2,333,664 |      |   | $         | 2,234,962 | 
|                                                                  |                                            |                             |           |           |      |  

F-82



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##### Table of Contents



GRUPO TRANSPORTACIÓN FERROVIARIA MEXICANA, S. A. DE
C. V.


NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                                   |  |                          |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                   |  | Condensed Combined       |         
|                                                                                   |  | and Consolidated         |         
|                                                                                   |  | Statements of Income     |         
|                                                                                   |  |                          |         
|                                                                                   |  | Years Ended December 31, |         
|                                                                                   |  |                          |         
|                                                                                   |  | 2002                     |          |   | 2003 |   |          | 2004 | 
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Transportation revenues                                                            |  | $                        | 712,140  |   |      | $ | 698,528  |      |  | $ | 699,224  |  
|Cost and expenses                                                                  |  |                          | 541,254  |   |      |   | 558,481  |      |  |   | 570,861  |  
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Income on transportation                                                           |  |                          | 170,886  |   |      |   | 140,047  |      |  |   | 128,363  |  
|Other expenses  Net                                                               |  |                          | (12,990  | ) |      |   | (32,755  | )    |  |   | (22,309  | )
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Operating income                                                                   |  |                          | 157,896  |   |      |   | 107,292  |      |  |   | 106,054  |  
|Net financing cost                                                                 |  |                          | (113,226 | ) |      |   | (124,827 | )    |  |   | (111,352 | )
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Income (loss) before provision for deferred income taxes and
    minority interest |  |                          | 44,670   |   |      |   | (17,535  | )    |  |   | (5,298   | )
|Equity method in associates                                                        |  |                          | 1,269    |   |      |   | 282      |      |  |   | 41       |  
|Current income tax                                                                 |  |                          |          |   |      |   | (10,763  | )    |  |   | (7,630   | )
|Deferred income tax benefit (expense)                                              |  |                          | 91,505   |   |      |   | 62,252   |      |  |   | 2,920    |  
|Minority interest                                                                  |  |                          | (27,260  | ) |      |   | (6,922   | )    |  |   | 1,621    |  
|                                                                                   |  |                          |          |   |      |   |          |      | 
|Net income (loss) for the year                                                     |  | $                        | 110,184  |   |      | $ | 27,314   |      |  | $ | (8,346   | )
|                                                                                   |  |                          |          |   |      |   |          |      | 

NOTE 19  SUBSEQUENT EVENTS:




|   |  |                                                                                                                                                                                                                      
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | The shareholders of Grupo TMM approved unanimously the Board of
    Directors recommendation to sell TMMs
    51 percent voting interest in Grupo TFM to KCS at a
    shareholder meeting held on January 11, 2005.
|  
|b) |  | Mexican Supreme Court Cases Relating to Statutory
    Profit Sharing Accounting (Unaudited)                                                                                                                          



F-83



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##### Table of Contents



EXHIBIT INDEX 1.1
    
    Unofficial English language
translation of the corporate by-laws (Estatutos Sociales) of
TFM, S.A. de C.V., as amended.1.2
    
    Unofficial English language
translation of the corporate by-laws (Estatutos Sociales) of Grupo TFM, S.A. de C.V., as amended.2.1
    
    Indenture, dated as of June 16, 1997, among TFM, S.A. de C.V., Grupo TFM, S.A.
de C.V., The Bank of New York, as trustee, and Bankers Trust Luxembourg, S.A., as a
paying agent, relating to $150,000,000 of 10.25% Senior Notes due 2007 of TFM, S.A. de
C.V.(incorporated herein by reference to Exhibit 4.1 of our registration statement on
Form F-4, File No. 333-08322).2.2
    
    First Supplemental Indenture, dated as of May 21, 2002, TFM, S.A. de C.V.,
Grupo TFM, S.A. de C.V., as guarantor, The Bank of New York, as trustee, and Deutsche
Bank Luxembourg S.A., as the paying agent, to the Indenture, dated June 16, 1997
(incorporated herein by reference to Exhibit 2.2 of our annual report on Form 20-F for
fiscal year 2002).2.3
    
    Indenture, dated as of June 13, 2002, between TFM, S.A. de C.V.and The Bank of
New York, as trustee, relating to $180,000,000 of 12.50% Senior Notes due 2012 of TFM,
S.A. de C.V.(incorporated herein by reference to Exhibit 4.3 of our registration
statement on Form F-4, File No. 333-102222).2.4
    
    Indenture, dated as of April 19, 2005, between TFM, S.A. de C.V.and The Bank
of Nova Scotia Trust Company of New York, as trustee and paying agent relating to
$460,000,000 of 9 3/8% Notes due 2012 of TFM, S.A. de C.V.(incorporated herein by
reference to Exhibit 4.2 of our Form 8-K filed on April 25, 2004).2.5
    
    Registration Rights Agreement, dated April 19, 2005, among TFM, S.A. de C.V.
and the placement agents engaged in the offering of the 9 3/8% Notes de 2012 of TFM,
S.A. de C.V.(incorporated herein by reference to Exhibit 4.1 of our Form 8-K filed on
April 25, 2004).4.1
    
    Concession title granted by the Secretaría de Comunicaciones y Transportes
(Ministry of Transportation) in favor of Ferrocarril del Noreste, S.A. de C.V., dated
December 2, 1996, together with an English translation (incorporated herein by
reference to Exhibit 2.1 of our Registration Statement on Form F-4, File No.
333-08322).4.2
    
    Amendment, dated February 12, 2001, of Concession title granted by Ministry of
Transportation in favor of TFM, December 2, 1996, together with an English translation
(incorporated herein by reference to Exhibit 4.2 from TFM and Grupo TFMs annual report
on Form 20-F for fiscal year 2000).4.3
    
    Sale Purchase Agreement, dated January 31, 1997, among the United Mexican
States (represented by the Mexican Treasury), FNM (acknowledged by the Mexican
Communication and Transportation Ministry) as sellers, and Grupo TFM (f/k/a
Transportación Ferroviaria Mexicana, S. de R.L. de C.V.), as buyer, relating to the
capital stock of Ferrocarril del Noreste, S.A. de C.V.(incorporated herein by
reference to Exhibit 2.2 of our registration statement on Form F-4, File No.
333-08322).




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##### Table of Contents



4.4
    
    Amendment to Sale Purchase Agreement, dated as of June 9, 1997, to the Sale
Purchase Agreement, dated January 31, 1997, among the United Mexican States
(represented by the Mexican Treasury), Grupo TFM, Grupo TMM (f/k/a Transportación
Marítima Mexicana, S.A. de C.V.) and KCS (f/k/a Kansas City Southern Industries, Inc.),
with the appearance of the Ministry of Transportation.4.5
    
    First Amended and Restated Credit Agreement, dated as of June 24, 2004, among
TFM, as borrower, JPMorgan Chase Bank, as administrative agent and the banks named
therein.4.6
    
    First Waiver and Amendment to the Credit Agreement, dated as of April 18, 2005,
among TFM, several banks party thereto and JPMorgan Chase Bank, N.A. (f/k/a JPMorgan
Chase Bank), as administrative agent.4.7
    
    Stock Purchase Agreement, dated as of August 16, 2004, among Grupo TMM, TFM and
Kansas City.4.8
    
    Amended and Restated Acquisition Agreement, dated December 15, 2004, among
Kansas City, Kara Sub, Inc., KCS Investment I, Ltd., KCS Acquisition Subsidiary, Inc.,
Caymex Transportation, Inc., Grupo TMM, TMM Holdings, S.A. de C.V., TMM Multimodal,
S.A. de C.V. and Grupo TFM amending and restating the Stock Purchase
Agreement, dated
April 15, 2005.8.1
    
    List of subsidiaries of Grupo TFM and TFM.11.1
    
    Unofficial English language translation of TFMs Code of Ethics (incorporated herein by reference
to Exhibit 11.1 to our annual report on Form 20-F for fiscal year 2003).12.1
    
    Certification of the principal executive officer of TFM and Grupo TFM required
under Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes Oxley
Act of 2002.12.2
    
    Certification of the principal financial officer of TFM and Grupo TFM required
under Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of the Sarbanes Oxley
Act of 2002.13.1
    
    Certification of principal executive officer and principal financial officer of
TFM and Grupo TFM, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.