<PAGE>

                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

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       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 NUMBER 333-8322

                               -------------------

                                TFM, S.A. DE C.V.
             (Exact name of Registrant as specified in its charter)

                                       N/A
                 (Translation of Registrant's name into English)

             GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.
             (Exact name of Registrant as specified in its charter)

                      MEXICAN RAILWAY TRANSPORTATION GROUP
                 (Translation of Registrant's name into English)

                              UNITED MEXICAN STATES
                 (Jurisdiction of incorporation or organization)
                      Av. Periferico Sur No. 4829, 4to Piso
                            Col. Parques del Pedregal
                               14010 Mexico, D.F.
                                     Mexico
                    (Address of principal executive offices)

                               ------------------

              Securities registered or to be registered pursuant to
Section 12(b) of the Act:

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                    -----------------------------------------
       None.                                      Not applicable.

 Securities registered or to be registered pursuant to Section 12(g) of the Act:
                                      None

<PAGE>

          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

      The number of outstanding shares of each of the issuers' classes of
capital or common stock as of December 31, 2003 was:

<TABLE>
<CAPTION>
TFM, S.A. de C.V.                                       Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.
-----------------                                       -------------------------------------------------------
<S>                <C>                                  <C>                     <C>
359,975,150        Class I Series A Shares              3,868,401               Series A Shares

204,691,752        Class II Series A Shares             3,716,699               Series B Shares

141,166,725        Class III Series A Shares            2,478,470               Series L, Sub-Series L-2 Shares

345,858,478        Class I Series B Shares

196,664,624        Class II Series B Shares

135,630,776        Class III Series B Shares
</TABLE>

      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 [X] No [ ]

      Indicate by check mark which financial statement item the registrant has
elected to follow.

      Item 17 [ ] Item 18 [X]

                                      -ii-

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                 PAGE
                                                                                                                 ----
<S>                                                                                                              <C>
                                                           PART I

ITEM 1.        IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..........................................     3
ITEM 2.        OFFER STATISTICS AND EXPECTED TIMETABLE........................................................     3
ITEM 3.        KEY INFORMATION................................................................................     3
ITEM 4.        INFORMATION ON THE COMPANY.....................................................................    19
ITEM 5.        OPERATING AND FINANCIAL REVIEW AND PROSPECTS...................................................    46
ITEM 6.        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................................................    63
ITEM 7.        MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............................................    70
ITEM 8.        FINANCIAL INFORMATION..........................................................................    75
ITEM 9.        THE OFFER AND LISTING..........................................................................    79
ITEM 10.       ADDITIONAL INFORMATION.........................................................................    80
ITEM 11.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................    92
ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........................................    93

                                                           PART II

ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES................................................    93
ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS...................    93
ITEM 15.       CONTROLS AND PROCEDURES........................................................................    93
ITEM 16A.      AUDIT COMMITTEE FINANCIAL EXPERT...............................................................    93
ITEM 16B.      CODE OF ETHICS.................................................................................    94
ITEM 16C.      PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................................................    94
ITEM 16D.      EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.....................................    94
ITEM 16E.      PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.........................    94

                                                          PART III

ITEM 17.       FINANCIAL STATEMENTS...........................................................................    95
ITEM 18.       FINANCIAL STATEMENTS...........................................................................    95
ITEM 19.       EXHIBITS.......................................................................................    96
</TABLE>

      In this annual report, references to "$" or "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-

<PAGE>

      This report constitutes the Annual Report on Form 20-F for the fiscal year
ended December 31, 2003 for each of TFM, S.A. de C.V. ("we," "us," "our" or
"TFM") and Grupo Transportacion 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. Except where
otherwise indicated, the disclosure presented in this report applies to both TFM
and Grupo TFM.

                           FORWARD-LOOKING STATEMENTS

      This report on Form 20-F contains certain forward-looking statements
within the meaning of Section 27A of the United States Securities Act of 1933,
as amended, (the "Securities Act") and Section 21E of the United States
Securities Exchange Act of 1934, as amended (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," "anticipate," "should," "planned,"
"estimated" 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 recent history of net losses;

      -     our ability to generate sufficient cash from operations to meet our
            obligations;

      -     the outcome of the arbitration and litigation between Grupo TMM,
            S.A. and Kansas City Southern relating to the acquisition agreement
            entered into between them dated April 20, 2003;

      -     our high degree of leverage;

      -     the impact of competition, including competition from other rail
            carriers, trucking companies and the shipping industry in the United
            Mexican States ("Mexico") and the United States ("U.S.");

      -     our potential need for and ability to obtain additional financing;

      -     our ability to successfully implement our business strategy,
            including our strategy to convert customers from using trucking
            services to rail transportation services;

      -     Mexican, U.S. and global economic, political and social conditions;

      -     the effects of the North American Free Trade Agreement ("NAFTA") on
            the level of trade among Mexico, the U.S. and Canada;

      -     the Mexican government's right to require Grupo TFM to purchase the
            Mexican government's 20% interest in TFM;

      -     the timing of our receipt of the recent value added tax ("VAT")
            award, the amount of such award and the form of such award;

      -     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 or the U.S.;

      -     fluctuations in the Peso - Dollar exchange rate;

                                      -1-

<PAGE>

      -     economic uncertainty following the terrorist attacks in the U.S. in
            2001 and the continuation of armed hostilities including, among
            others, those in Iraq; and

      -     other factors described in this report.

                           CERTAIN RECENT DEVELOPMENTS

DISPUTE BETWEEN GRUPO TMM, S.A. ("GRUPO TMM") AND KANSAS CITY SOUTHERN ("KCS")

      On April 20, 2003, Grupo TMM and KCS, which are the principal shareholders
of Grupo TFM, entered into an acquisition agreement (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. KCS has disputed Grupo TMM's
right to terminate the Acquisition Agreement and alleged certain breaches by
Grupo TMM of the Acquisition Agreement. On March 19, 2004, an arbitration panel
which was chosen in accordance with the terms of the Acquisition Agreement
issued an Interim Award in which it concluded that the rejection of the
Acquisition Agreement by Grupo TMM's shareholders in their vote on August 18,
2003 did not authorize Grupo TMM's termination of the Acquisition Agreement.
Accordingly, the Acquisition Agreement remains in force and binding on the
parties until otherwise terminated according to its terms or by law. In reaching
its conclusion, the arbitration panel specifically declined to rule on the issue
of whether approval by Grupo TMM's shareholders is a "condition" under the
Acquisition Agreement. On April 4, 2004, the arbitration panel issued an order,
which was stipulated to by KCS and Grupo TMM, providing that the parties agreed
"not to request a scheduling order for a further hearing in the arbitration at
this time" and that "each party reserves the right to request a scheduling order
for a further hearing at any time." In a stipulation signed by Grupo TMM and KCS
and accepted by the arbitration panel, the two companies have agreed to
discharge in good faith all of the obligations of the Acquisition Agreement. See
Item 3D, "Risk Factors -- Our strategic partners, Grupo TMM and KCS, are
involved in a dispute and we are involved in other legal proceedings with KCS"
and Item 8A, "Financial Information -- Consolidated Statements and Other
Financial Information -- Legal Proceedings -- Dispute between Grupo TMM and
KCS."

VAT AWARD

      On January 19, 2004, the Mexican Treasury delivered to TFM a Special VAT
Certificate in the historical claim amount of approximately Ps. 2.1 billion, or
approximately $195 million (based on the applicable exchange rate as of that
date). The historical claim amount does not include additional amounts which TFM
is seeking to account for the effects of inflation and interest accrued on the
original claim amount. On January 20, 2004, the Mexican Fiscal Administration
Service issued a provisional attachment on the Special VAT Certificate, stating
that the documents that support the acquisition of assets according to the
privatization, do not comply with applicable tax requirements. TFM subsequently
presented a complaint before the upper chamber of the Federal Tribunal of Fiscal
and Administrative Justice. TFM has not yet received an official decision
concerning this complaint, but is aware that the Fiscal Court voted against
TFM's request to compel the government to reissue its Special Certificate to
include inflation and accrued interest. TFM intends to present to the
Magistrates Federal Court, which is the highest authority on legal matters in
Mexico, all proper petitions and motions in support of its rights consistent
with rulings issued by the Magistrates Federal Court in the past years. See Item
8A, "Financial Information -- Consolidated Statements and Other Financial
Information -- Legal Proceedings -- VAT Award."

MEXICAN GOVERNMENT'S PUT ON ITS EQUITY INTEREST IN TFM

      Grupo TFM requested that a federal court review the Ministry of
Transportation's communications with respect to the Mexican government's put
rights. On December 16, 2003, the Fourth Administrative District Court issued an
injunction ordering Grupo TFM, the Ministry of Transportation and the Treasury
to maintain the status quo pending judicial resolution of the dispute.
Additionally, Grupo TFM requested and obtained an injunction which prevents the
Mexican government from exercising its put option. The Mexican government's
ability to exercise its put option has been suspended until legal proceedings
related to these matters are resolved. See Item 3D, "Risk Factors -- The Mexican
government has the right, subject to certain conditions, to require Grupo TFM to
purchase the Mexican government's 20% interest in TFM" and Item 8A, "Financial
Information -- Consolidated Statements and Other Financial Information -- Legal
Proceedings -- Mexican Government's Put on its Equity Interest in TFM."

AMENDMENT TO TFM'S TERM LOAN FACILITY AND REFINANCING OF TFM'S COMMERCIAL PAPER
PROGRAM

      On June 24, 2004, in order to refinance its commercial paper program, TFM
entered into an amendment to its term loan facility which was established on
September 17, 2002. The amendment increased the amount of the term loan facility
to $186.4 million, the proceeds of which will be used to repay amounts
outstanding under TFM's commercial paper program. Under the amended term loan
facility, Dollar-denominated commitments bear interest at a floating rate based
on an adjusted Eurodollar rate plus an applicable Eurodollar margin. Certain
lenders may elect to extend Peso-denominated commitments which bear interest at
a floating rate based on the Tasa de Interes Interbancana de Equilibrio
published by Banco de Mexico plus an applicable Peso margin. Amounts outstanding
under the amended term loan facility are secured by a first priority conditional
pledge on the locomotives owned by TFM's subsidiary, Arrendadora TFM, S.A. de
C.V.

      Amounts outstanding under the amended term loan facility are payable in
semi-annual installments beginning in September 2004 and ending in September
2006. Certain lenders may elect to make their respective portion of the loan
payable in semi-annual installments beginning in September 2004 and ending in
September 2005. TFM may voluntarily prepay the loan under the amended term loan
facility without penalty provided it gives five business days' notice, subject
to a minimum payment threshold. TFM is required to prepay the loan using excess
cash flow or if it receives 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 Purchase-Sale Agreements dated January 31, 1997
and June 9, 1997.

      The amended term loan facility contains customary covenants, including
limitations on dividends, limitations on investments, limitations on prepayments
of (and amendments to the terms of) other indebtedness, limitations on sale and
leaseback transactions, limitations on asset sales, limitations on the
incurrence of indebtedness, and limitations on affiliate transactions. Under the
amended term loan facility, TFM is also subject to various financial covenants,
including maintaining certain consolidated interest coverage, consolidated fixed
charge coverage and consolidated leverage ratios.

                                      -2-


<PAGE>

                                     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 selected historical financial data of TFM and
Grupo TFM for the years ended December 31, 1999, 2000, 2001, 2002 and 2003. We
derived the selected financial data below for the years ended December 31, 2001,
2002 and 2003 from the combined and consolidated audited financial statements of
TFM ("TFM's financial statements") and the combined and consolidated audited
financial statements of Grupo TFM ("Grupo TFM's financial statements", together
with TFM's financial statements, "our financial statements") on which
PricewaterhouseCoopers, S.C., independent accountants, have reported included
elsewhere in this report. We derived the selected financial data below for the
years ended December 31, 1999 and 2000 from combined and consolidated
information which is not included in this report and which was prepared to be
consistent with the combined and consolidated audited financial statements of
TFM and Grupo TFM for the years ended December 31, 2001, 2002 and 2003. The
selected audited financial data should be read in conjunction with Item 5,
"Operating and Financial Review and Prospects," and our financial statements and
notes thereto included elsewhere in this report.

      Our financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), which differ in certain
material respects from U.S. Generally Accepted Accounting Principles ("U.S.
GAAP"). Effective May 2002, IFRS is the new term for the entire body of
accounting standards issued by the International Accounting Standards Board (the
"IASB"), replacing the earlier term, International Accounting Standards ("IAS").
Individual accounting standards that the IASB issued prior to this change in
terminology continue to use the prefix "IAS". See Item 5A, "Operating and
Financial Review and Prospects -- Operating Results -- Accounting
Considerations." See also Note 12 to our financial statements for a description
of the principal differences between IFRS and U.S. GAAP as they relate to TFM
and Grupo TFM and a reconciliation to U.S. GAAP of net income and stockholders'
equity.

TFM

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                                       -----------------------
             AMOUNTS UNDER IFRS                        1999        2000         2001        2002         2003
             ------------------                        ----        ----         ----        ----         ----
                                                          (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                 <C>         <C>          <C>         <C>          <C>
RESULTS OF OPERATIONS DATA:
  Transportation revenues........................   $ 574,567   $ 695,425    $ 720,627    $712,140     $698,528
  Operating expenses.............................     449,219     530,569      570,500     557,671      565,371
  Other (income) expenses........................       3,781      22,889      (34,257)     19,614       35,601
  Operating income...............................     121,567     141,967      184,384     134,855       97,556
  Interest expense...............................     106,538     109,736       87,009     101,722      112,641
  Interest income................................       4,026       2,234        4,510       4,974        1,509
  Exchange loss -- net...........................         (43)     (1,435)       2,819     (17,508)     (13,744)
  (Loss) income before benefit for deferred
   income taxes..................................      19,012      33,030      104,704      20,599      (27,320)
  Net income (loss) for the period...............   $  61,305   $  50,814     $102,154   ($ 11,350)   ($ 61,044)
                                                    =========   =========     ========   =========    =========
  Operating income per share.....................      0.0906      0.1191       0.1085      0.1116       0.0705
  Net income (loss) for the period per share(1)..   $  0.0443   $  0.0367     $ 0.0738   ($ 0.0082)   ($ 0.4411)
                                                    =========   =========     ========   =========    =========
</TABLE>

                                       -3-

<PAGE>

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------------------------
        AMOUNTS UNDER IFRS                                    1999           2000            2001           2002            2003
        ------------------                                    ----           ----            ----           ----            ----
                                                                      (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                     <C>             <C>            <C>             <C>            <C>
OTHER FINANCIAL DATA:
   Depreciation and amortization......................  $     73,235    $     76,626   $     78,345    $     81,401   $     85,403
   Capital expenditures...............................        55,967          66,918         85,245          89,355         73,121
   Net cash provided by (used in)
     Operating activities.............................        92,420         176,701        120,052         125,250         99,664
     Investing activities.............................       (22,671)        (59,765)       (83,233)       (295,288)       (70,731)
     Financing activities.............................       (64,851)        (99,427)       (29,383)        159,681        (55,585)
BALANCE SHEET DATA (AT END OF PERIOD):
   Total assets.......................................  $  2,762,152    $  2,790,734   $  2,944,395    $  2,806,892   $  2,728,149
   Total debt and capital lease obligations(2)........       844,876         802,170        826,364         988,983        939,899
   Total liabilities..................................       935,157         912,925        964,432       1,158,460      1,141,143
   Common 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      1,758,882
                                                        ------------    ------------   ------------    ------------   ------------
   Total stockholders' equity.........................  $  1,826,995    $  1,877,809   $  1,979,963    $  1,648,516   $  1,587,472
                                                        ------------    ------------   ------------    ------------   ------------
AMOUNTS UNDER U.S. GAAP

  Stockholders' equity (at end of period).............  $  1,758,116    $  1,811,679   $  1,903,599    $  1,740,714   $  1,774,875
  Net (loss) income for the period....................         5,302          53,563         91,919         136,655         34,161
                                                        ============    ============   ============    ============   ============
  Net (loss) income for the period per share(1).......  $     0.0038    $     0.0387   $     0.0664    $     0.0987   $     0.0247
                                                        ============    ============   ============    ============   ============
</TABLE>

--------------------

(1)   The weighted average number of shares outstanding for all periods was
      1,383,987,500 for TFM. Basic and fully diluted shares were the same for
      all periods presented.

(2)   Includes short- and long-term debt.

GRUPO TFM

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                         ---------------------------------------------------------------------------
               AMOUNTS UNDER IFRS                             1999           2000            2001           2002            2003
               ------------------                             ----           ----            ----           ----            ----
                                                                       (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                      <C>             <C>            <C>             <C>            <C>
RESULTS OF OPERATIONS DATA:
   Transportation revenues............................   $    574,567    $    695,425   $    720,627    $    712,140   $    698,528
   Operating expenses.................................        450,370         531,720        571,651         558,822        566,522
   Other (income) expenses............................          2,448          21,574        (35,572)         19,255         35,382
   Operating income...................................        121,749         142,131        184,548         134,063         96,624
   Interest expense...................................        106,538         109,739         87,009         101,722        112,641
   Interest income....................................          4,026           2,238          4,510           4,974          1,509
   Exchange loss -- net...............................            (75)         (1,424)         2,783         (17,411)        13,695
   (Loss) income before benefit for deferred                                                                                (28,203)
    taxes and minority interest.......................         19,162          33,206        104,832          19,904
   (Loss) income before minority interest.............         59,597          51,474        102,180         (10,329)       (61,093)
   Net (loss) income for the period...................   $     47,335    $     41,311   $     81,749    $     (7,988)  $    (48,939)
                                                         ============    ============   ============    ============   ============
   Operating income per share.........................        12.3412         16.2671        14.8035         17.0144        12.7386
   Net (loss) income for the period per share(1).        $     4.7036    $     4.1050   $     8.1233    $    (0.8865)  $    (6.4520)
                                                         ============    ============   ============    ============   ============
OTHER FINANCIAL DATA:
   Depreciation and amortization......................   $     74,386    $     77,777   $     79,496    $     82,552   $     86,554
   Capital expenditures...............................         55,967          66,918         85,245          89,355         73,121
   Net cash provided by (used in)
     Operating activities.............................         92,436         176,707        132,547         112,746         99,664
     Investing activities.............................        (22,671)        (59,765)       (83,233)       (295,288)       (70,731)
     Financing activities.............................        (64,851)        (99,427)       (29,383)        159,681        (55,585)
</TABLE>

                                      -4-

<PAGE>

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                         --------------------------------------------------------------------------
               AMOUNTS UNDER IFRS                             1999           2000            2001           2002            2003
               ------------------                             ----           ----            ----           ----            ----
                                                                       (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                      <C>             <C>            <C>             <C>            <C>
BALANCE SHEET DATA (AT END OF PERIOD):
   Total assets.......................................   $  2,153,929    $  2,183,174   $  2,336,865    $  2,200,423   $  2,122,112
   Total debt and capital lease obligations(2)........        844,876         802,170        826,364         988,983        939,899
   Total liabilities..................................        935,157         912,930        964,441       1,158,460      1,141,232
   Common stock authorized, issued and
      outstanding(3)..................................        807,008         807,008        807,008         807,008        807,008
   Total stockholders' equity.........................   $    853,372    $    894,683   $    976,432    $    712,344   $    663,405
                                                         ------------    ------------   ------------    ------------   ------------
AMOUNTS UNDER U.S. GAAP

Stockholders' equity (at end of period)...............   $    798,268    $    841,780   $    915,341    $    785,872   $    813,186
Net (loss) income for the period......................          2,532          43,512         73,561         110,184         27,314
                                                         ============    ============   ============    ============   ============
Net (loss) income for the period per share(1).........   $     0.2516    $     4.3237   $     7.3096    $    12.2276   $     3.6010
                                                         ============    ============   ============    ============   ============
</TABLE>

(1)   The weighted average number of shares outstanding was 10,063,570 in 1999,
      2000, and 2001, 9,011,069 in 2002 and 7,585,100 in 2003 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 1999, 2000 and 2001, 9,011,069 in 2002 and
      7,585,100 in 2003.

EXCHANGE RATES

      The following table sets forth, for the periods indicated, the period-end,
average, high and low noon buying rate for the purchase and sale of Dollars,
expressed in Pesos per Dollar. On June 28, 2004, the noon buying rate was Ps.
11.42 per Dollar.

<TABLE>
<CAPTION>
                                                                                   YEAR/MONTH-END         PERIOD
YEAR ENDED DECEMBER 31,                          HIGH                LOW              AVERAGE               END
-----------------------                          ----                ---              -------               ---
<S>                                             <C>                 <C>            <C>                    <C>
1999 ..................................         10.60                9.24               9.56                9.48
2000...................................         10.09                9.18               9.46                9.62
2001...................................          9.97                8.95               9.34                9.16
2002...................................         10.43                9.00               9.68               10.43
2003...................................         11.41               10.11              10.79               11.24
December 2003..........................         11.41               11.17              11.25               11.24
January 2004...........................         11.10               10.81              10.92               11.01
February 2004..........................         11.25               10.91              11.03               11.06
March 2004.............................         11.23               10.92              11.02               11.18
April 2004.............................         11.43               11.16              11.27               11.40
May 2004...............................         11.64               11.38              11.52               11.41
</TABLE>

-----------------
Source:  Federal Reserve Bank of New York.

B.    CAPITALIZATION AND INDEBTEDNESS

      Not applicable.

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS

      Not applicable.

                                      -5-

<PAGE>

D.    RISK FACTORS

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 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 year ended December 31, 2002 and 2003, respectively. We hope to reduce
our net losses during the next several quarters and hope to achieve
profitability to the extent that Mexico and the U.S. recover from the economic
recession during 2004, the Peso-Dollar exchange rate becomes more favorable and
fuel prices decrease. However, we cannot assure you that we will be able to
achieve or, if achieved, sustain profitability in the future.

OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL POSITION AND
OUR ABILITY TO MEET OUR OBLIGATIONS UNDER OUR DEBT SECURITIES AND TO OPERATE OUR
BUSINESS.

      We have a substantial amount of debt and significant debt service
obligations. As of December 31, 2003, TFM had total outstanding indebtedness of
$940.0 million, consisting of senior unsecured indebtedness under TFM's 10.25%
Senior Notes due 2007 (the "2007 senior notes") with a principal amount of
$150.0 million outstanding and guaranteed by Grupo TFM, 11.75% Senior Discount
Debentures due 2009 (the "2009 debentures") with a principal amount of $443.5
million outstanding and guaranteed by Grupo TFM, 12.50% Senior Notes due 2012
with a principal amount of $180.0 million outstanding (the "2012 senior notes"
and, together with the 2007 senior notes and the 2009 debentures, the
"securities"), obligations under capital leases and TFM's bank facilities (the
"commercial paper program" and the "term loan facility"). TFM's stockholders'
equity was $1,587.5 million as of December 31, 2003, resulting in a debt to
equity ratio of 0.6. Grupo TFM's stockholders' equity was $663.4 million as of
December 31, 2003, resulting in a debt to equity ratio of 1.4. As of
December 31, 2003, there were $85.0 million outstanding under the commercial
paper program and $109.7 million outstanding under the term loan facility. In
addition, TFM may incur more debt, subject to the restrictions contained in the
indentures governing the securities and TFM's term loan facility.

      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, or 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 devaluation of the Peso would cause the cost of our
            Dollar-denominated debt to increase; and

      -     we may be at a competitive disadvantage compared to our competitors
            that have less debt and greater operating and financing flexibility
            than we do.

      The commercial paper program terminates on September 17, 2004 (unless
extended), so we must either repay, replace, refinance or extend the program at
that time. We are currently negotiating a refinancing of our commercial paper
program to extend the termination date to September 2006. However, we may be
unable to refinance the commercial paper program or we may not have sufficient
cash to repay our debt when it becomes due,

                                      -6-

<PAGE>

which could result in a default under the respective indentures governing the
securities as well as the agreements governing the commercial paper program.

      On June 24, 2004, TFM entered into an amendment to the term loan facility
in order to refinance the commercial paper program. See "Certain Recent
Developments -- Amendment to TFM's Term Loan Facility and Refinancing of TFM's
Commercial Paper Program."

FAILURE TO COMPLY WITH RESTRICTIVE COVENANTS IN OUR EXISTING CONTRACTUAL
ARRANGEMENTS COULD ACCELERATE OUR REPAYMENT OBLIGATIONS UNDER OUR DEBT.

      The indentures relating to the securities and the credit agreements
relating to our bank facilities contain a number of restrictive covenants, and
any additional financing arrangements we enter into may contain additional
restrictive covenants. The credit agreements relating to our bank facilities
contain covenants that are more restrictive than those contained in the
indentures relating to the securities, including certain financial covenants
which require us to maintain specified financial ratios. Any breach of these
covenants could result in a default under the indentures and the credit
agreements. These covenants restrict or prohibit many actions, including 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.

      If we fail to comply with these restrictive covenants, our obligation to
repay our securities or our other debt may be accelerated.

WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH TO SERVICE OR REFINANCE OUR DEBT.

      Our ability to satisfy our obligations under our debt in the future will
depend upon our future performance, including our ability to increase revenues
significantly and control expenses. Our future operating performance depends
upon prevailing economic, financial, business and competitive conditions and
other factors, many of which are beyond our control.

      We cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated revenues and operating performance
will be realized or that future borrowings will be available to us in amounts
sufficient to pay our debt or to fund our other liquidity needs.

      If our cash flow from operations is insufficient to satisfy our
obligations, we may take specific actions, including delaying or reducing
capital expenditures, or attempting to refinance our debt at or prior to its
maturity. Alternatively, in the absence of such refinancing, we may attempt to
sell assets quickly in order to make up for any shortfall in payments under
circumstances that might not be favorable to getting the best price for the
assets, or we may seek additional equity capital. Our ability to refinance our
debt and take other actions will depend on, among other things, our financial
condition at the time, the restrictions in the instruments governing our debt
and other factors, including market conditions, beyond our control. We may be
unable to take any of these actions on satisfactory terms or in a timely manner.
Further, any of these actions may not be sufficient to allow us to meet our debt
obligations. Our indentures and the credit agreements related to our new bank
facilities limit our ability to take certain of these actions. Our failure to
successfully undertake any of these actions, or significant increases in the
Peso cost to service our Dollar-denominated debt, could materially and adversely
affect our business or operations.

                                      -7-

<PAGE>

WE HAVE SOUGHT WAIVERS UNDER OUR CREDIT AGREEMENTS AND MAY REQUIRE ADDITIONAL
WAIVERS IN THE FUTURE.

      We did not meet certain required maintenance covenants regarding financial
ratios under our bank credit facilities for each of the three months 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. It is possible that we may require additional waivers under our
bank credit facilities. If we require such waivers in the future, there can be
no assurance that such waivers will be obtained. If such waivers are not
obtained, we would be in default under our bank credit facilities and such
default could result in acceleration of amounts due under the bank credit
facilities and in cross-defaults under other obligations.

OUR BUSINESS IS VERY CAPITAL INTENSIVE AND REQUIRES US TO MAKE SIGNIFICANT
ONGOING CAPITAL EXPENDITURES; FAILURE TO MAKE SUCH CAPITAL EXPENDITURES COULD
RESULT IN THE REVOCATION OF OUR CONCESSION.

      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 accommodate increases in traffic volumes or service our existing
customers. In addition, our railroad concession from the Mexican government
requires us to make investments and undertake capital projects in accordance
with a business plan approved by the Mexican government. We may defer capital
expenditures with respect to our five-year business plan with the permission of
the Secretaria de Comunicaciones y Transportes (the Mexican Ministry of
Communications and Transportation 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.

      In 2001, 2002 and 2003, we made capital expenditures of $85.2 million,
$89.4 million and $73.1 million, respectively, which represented 11.8%, 12.5%
and 10.5% of our transportation revenues for each of those years, respectively.
We made capital expenditures of $11.6 million, representing 6.9% of our
transportation revenues, for the quarter ended March 31, 2004. We expect to make
capital expenditures for the years ended 2004 and 2005 in an amount of up to
$90.2 million and $109.2 million, respectively. These capital expenditures
include the expenses we expect to incur for (i) the rehabilitation and
improvement of our secondary rail lines, (ii) the construction of new intermodal
terminals near the manufacturing plants of our automotive customers, (iii) the
acquisition and improvement of track equipment, (iv) the modernization of our
microwave 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. 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. Also, additional financing may not be
available to us. If financing is available, it may not be obtainable on terms
acceptable to us and within the limitations 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 accommodate increases in our
traffic volumes or service our existing customers may be limited or impaired,
and the Mexican government could revoke our concession.

SIGNIFICANT COMPETITION FROM TRUCKS AND OTHER RAILROADS, AS WELL AS LIMITED
COMPETITION FROM THE SHIPPING INDUSTRY, COULD ADVERSELY AFFECT OUR FUTURE
FINANCIAL PERFORMANCE.

      We face significant competition from trucks and other rail carriers as
well as limited competition from the shipping industry in our freight
operations. The trucking industry is our industry's primary competition. In the
past, the trucking industry has significantly eroded the railroad's market share
of Mexico's total overland freight transportation. In some circumstances, the
trucking industry can provide effective rate and service competition because
trucking requires substantially smaller capital investments and maintenance
expenditures and allows for more frequent and flexible scheduling. 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.

      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

                                      -8-

<PAGE>

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 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.

      We cannot assure you that truck transport between Mexico and the U.S. will
not increase substantially in the future. Such an increase could affect our
ability to continue converting traffic from truck to rail transport because it
may result in an expansion of the availability, or an improvement of the
quality, of the trucking services offered in Mexico.

      Approximately 50% of our expected revenue growth during the next few years
is expected to result from increased truck-to-rail conversion. If the railroad
industry in general, and we in particular, are unable to preserve competitive
advantages vis-a-vis the trucking industry, our business plan may not be
achieved and our projected revenue growth could be adversely affected. 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 converted. Additionally, our revenue growth could be affected by, among
other factors, our inability to grow our existing customer base, negative
macroeconomic developments impacting the U.S. and Mexican economies, and failure
to capture additional cargo transport market share from the shipping industry
and other railroads.

      In addition to trucks, we face significant competition in some industry
segments from other railroads, in particular Ferrocarril Mexicano, S.A. de C.V.
("Ferromex") which operates the Pacific-North 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 Laredo, Texas, providing a potential alternative to our routes for the
transport of freight from those cities to the U.S. border. 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.
("Ferrosur"), which operates the Southeast Rail Lines, also competes directly
with us for traffic to and from southeastern Mexico. Ferrosur, like TFM, serves
Mexico City, Puebla and Veracruz.

      Ferromex and Ferrosur are privately-owned companies that may have greater
financial resources than us. Among other things, this advantage 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. For example, we experience
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
would have a material adverse effect on our results of operations.

      Under our concession, we must grant Ferromex the right to operate over a
north-south portion of our rail lines between Ramos Arizpe near Monterrey and
the city of Queretaro that constitutes over 600 kilometers of our main track.
Ferromex may be able to use these trackage rights to compete with us over our
rail lines for traffic

                                      -9-

<PAGE>

between Mexico City and the U.S. Our concession also requires us to grant
Ferrosur rights to use certain portions of our tracks and the "belt railroad"
operated in the greater Mexico City area by the Terminal Ferroviaria del Valle
de Mexico, S.A. de C.V. (the Mexico City Railroad Terminal or "Mexico City
Terminal," which operates the Ferrocarril y Terminal del Valle de Mexico, S.A.
de C.V. (the Mexico City Terminal Railroad)), thereby providing Ferrosur with
more efficient access to certain Mexico City industries. As a result of having
to grant trackage rights to other railroad companies, we incur additional
maintenance costs and also lose the flexibility of using our tracks at all
times.

      On February 22, 2002, Ferromex and Ferrosur announced that they had agreed
to the acquisition of Ferrosur by Ferromex. TFM filed a notice with the Comision
Federal de Competencia (the Mexican Antitrust Commission) objecting to the
proposed acquisition on the grounds that it would limit competition. The
acquisition was reviewed by the Mexican Antitrust Commission and, on May 16,
2002, the Mexican Antitrust Commission announced that it notified Ferromex that
it had denied authorization to consummate the acquisition on antitrust grounds.
Ferromex subsequently filed an appeal for review of the order and, on September
18, 2002, the Mexican Antitrust Commission confirmed its prior ruling denying
authorization to consummate the acquisition. On October 31, 2002, Ferromex
requested that the Federal Courts in Mexico review the decision of the Mexican
Antitrust Commission. We also requested a Federal Court in Mexico to review our
complaint against the acquisition, requesting to be recognized as a party to the
proceedings of the Mexican Antitrust Commission, and obtained a favorable ruling
(amparo). Ferromex and Ferrosur subsequently withdrew their petition before the
Mexican Antitrust Commission, which terminated the acquisition request in
October 2003.

      In addition, in recent years, there has been significant consolidation
among major North American rail carriers. The resulting merged railroads may
attempt to use their size and pricing power to block other railroads' 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 us.

      We also face limited competition from the shipping industry with respect
to some products, including chemicals transported by barges and vessels from
Gulf of Mexico ports in Texas and Louisiana.

A SIGNIFICANT PERCENTAGE OF OUR TRANSPORTATION REVENUES IS DERIVED FROM THE
AUTOMOTIVE INDUSTRY, WHICH IS MADE UP OF A RELATIVELY SMALL NUMBER OF CUSTOMERS.
THE LOSS OF ANY ONE OF THESE CUSTOMERS COULD ADVERSELY AFFECT OUR REVENUES.

      In 2003, 19.4% of our transportation revenues were derived from the
transport of automotive products. General Motors, DaimlerChrysler and Ford Motor
Co. were among our most significant customers, together representing
approximately 16.2% of our total revenues in 2003. We cannot assure you that our
most significant customers will continue to order services from us in the future
or that they will not reduce or delay the amount of services ordered. If one or
more of our most significant customers were to become insolvent or otherwise
were unable to pay us for the services provided, our results of operations 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 Mexico City Terminal
Railroad. The concession stipulates that Ferromex, Ferrosur and the Mexico City
Terminal Railroad 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 Ley
Reglamentaria del Servicio Ferroviario (Law Regulating Railroad Services or
"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 using criteria
including:

      -     the costs of infrastructure maintenance and traffic control relating
            to the portion of our lines to be used by the other rail operator;

                                      -10-

<PAGE>

      -     the increase in costs due to interference with our operations;

      -     the amortized capital investments, including the value of the
            concession, directly related to the affected lines; and

      -     a reasonable profit calculated with reference to international
            railroad standards and reflecting investment conditions in Mexico.

      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. Therefore, in accordance with our rights under the Mexican
railroad services law and regulations, in February 2001, we initiated an
administrative proceeding requesting a determination of such rates by the
Ministry of Transportation.

      In connection with such administrative proceeding, on March 13, 2002 and
August 5, 2002, respectively, the Ministry of Transportation issued two rulings
in response to our request. One such ruling established rates to be charged for
short and long-distance trackage rights and the other ruling established rates
to be charged for interline services and haulage rights, respectively. The rates
with respect to such rulings were based on the criteria set forth in the Mexican
railroad services law and regulations. TFM and Ferromex have appealed both
rulings issued by the Ministry of Transportation before the Mexican Federal
Courts. TFM and Ferromex also requested and obtained a suspension of the
effectiveness of the rulings pending resolution of this appeal.

      In September 2001, Ferromex filed a legal claim against us relating to the
payments that we and Ferromex are required to make to each other for interline
services and trackage and haulage rights. We believe that this legal claim is
without merit and that the payments for interline services and trackage and
haulage rights owed to us by Ferromex exceed the amount of payments that
Ferromex claims we owe to Ferromex for such services and rights. Accordingly, we
believe that the outcome of this legal claim will not have a material adverse
effect on our financial condition. On September 25, 2002, the Third Civil Court
of Mexico City rendered a judgment in our favor. Ferromex subsequently appealed
the judgment and we prevailed on the appeal. Ferromex then proceeded to the
"amparo" proceedings before the Federal Courts of Mexico, and obtained a
resolution ordering the higher local court to review the case again exclusively
with respect to the interline services part of the original claim. The higher
local court issued a new ruling which both Ferromex and we contested in a new
"amparo" proceeding at the Federal Court. Both parties obtained a favorable
resolution. On March 22, 2004, the higher local court, in full compliance with
the Federal Court resolution, issued a new resolution confirming the ruling
issued on September 25, 2002 by the Third Civil Court of Mexico City in favor of
us. On April 14, 2004, Ferromex filed a new legal claim ("incidente de
repeticion de acto reclamado") before the Federal Courts, which we are currently
vigorously contesting. While we believe we are likely to succeed in the latest
action before the Federal Courts, we cannot assure you that we will ultimately
prevail.

      In connection with the Ferromex claim, Ferromex temporarily prevented us
from using certain short trackage rights which we have over a portion of the
route running from Celaya to Silao, which is the site of a General Motors plant
from where we transport finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving us
access, and in October 2001, we filed a counterclaim against Ferromex relating
to these actions. We have also initiated several judicial and administrative
proceedings at the Ministry of Transportation to seek the imposition of
sanctions on Ferromex for violations to the trackage rights in the route from
Celaya to Silao, which as of to date have not been resolved.

      We have also initiated several administrative and judicial proceedings
(including criminal actions) against Ferromex at the Ministry of Transportation
and the relevant Federal Courts, in connection with its trackage rights in
Altamira, Topo Grande-Chipinque, Guadalajara, Arellano-Chicalote, Ramos
Arizpe-Encantada, and Pedro C. Morales-Cerro de la Silla. We cannot predict
whether we will ultimately prevail in such proceedings.

      In March 2002, the Ministry of Transportation issued its ruling in
response to our request, establishing a rate to be charged for trackage rights
using the criteria set forth in the Mexican railroad services law and
regulations. We are appealing the ruling and requesting a suspension of the
effectiveness of the ruling pending resolution of its appeal. We cannot predict
whether we will ultimately prevail. We believe that even if the rates
established in the ruling goes into effect and we and Ferromex begin using the
long-distance trackage rights over each other's rail line, this will not have a
material adverse effect on our results of operations. A separate ruling was
issued confirming our

                                      -11-

<PAGE>

right to use the Celaya-Silao stretch of Ferromex track, which was appealed by
Ferromex before Federal Courts obtaining the suspension of such ruling. We
requested and obtained an "amparo" proceeding against such suspension and
Ferromex appealed the resolution granting the "amparo" to us. On January 9,
2004, the higher Federal Court confirmed the "amparo" resolution obtained by us,
thereby confirming our right to use the Celaya-Silao stretch of Ferromex track.
We cannot predict whether we will ultimately prevail in the main procedure
regarding our right to use the Celaya-Silao stretch of Ferromex track.

      We and Ferromex have both initiated several judicial and administrative
proceedings in connection with the amounts payable to each other for interline
services, haulage and trackage rights. Those procedures continue under
litigation and therefore are pending of final resolution.

TERRORIST ACTIVITIES AND GEOPOLITICAL EVENTS AND THEIR CONSEQUENCES COULD
ADVERSELY AFFECT OUR OPERATIONS.

      As a result of the terrorist attacks in the U.S. on September 11, 2001 and
the continuation of armed hostilities including, among others, those in Iraq,
there has been increased short-term market volatility, and there may be
long-term effects on the U.S. and world economies and markets.

      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, may also result and could negatively impact our operations. The
consequences of terrorism and the responses thereto are unpredictable and could
have an adverse effect on our operations.

DOWNTURNS IN GLOBAL ECONOMIC CONDITIONS, THE U.S. ECONOMY, U.S.-MEXICO TRADE OR
CERTAIN CYCLICAL INDUSTRIES IN WHICH OUR CUSTOMERS OPERATE AND FLUCTUATIONS IN
THE PESO-DOLLAR EXCHANGE RATE WOULD LIKELY HAVE ADVERSE EFFECTS ON OUR BUSINESS
AND RESULTS OF OPERATIONS.

      We believe that traffic that crosses the U.S. border on our rail lines
generates the majority of our freight revenue. As a result, the level and timing
of our business activity is, and will continue to be, strongly influenced by the
level of U.S.-Mexican trade and the effects of NAFTA or other international
trade agreements on such trade. Downturns in global economic conditions, in the
U.S. or Mexican economy or in trade between the U.S. and Mexico 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, many of which we transport, are
an important element of U.S.-Mexico 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 U.S. and Mexican 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 as described above.

      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 results.

      Also, fluctuations in the Peso-Dollar exchange rate could lead to shifts
in the types and volumes of Mexican imports and exports.

      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 U.S.-Mexico trade and
the development

                                      -12-

<PAGE>

of U.S.-Mexican 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.

POTENTIAL LABOR DISRUPTIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
OUR ABILITY TO MEET OUR OBLIGATIONS UNDER OUR DEBT.

      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 2005. 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 may not be
able to favorably negotiate the provisions of our labor agreement, and strikes,
boycotts or other disruptions could occur. These potential disruptions could
have a material adverse effect on our financial condition and results of
operations and on our ability to meet our payment obligations under our debt.

THE MEXICAN GOVERNMENT MAY REVOKE OR RESTRICT OUR ABILITY TO EXPLOIT OUR
CONCESSION UNDER A NUMBER OF CIRCUMSTANCES.

      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 the Mexican Antitrust Commission determines that effective
competition does not exist. Since the Mexican government only recently
privatized Mexico's rail system and opened the rail industry to competition, the
Mexican Antitrust Commission has not considered the issue of, or published
guidelines concerning, what constitutes a lack of competition. It is therefore
unclear under what circumstances the Mexican Antitrust Commission would deem a
lack of competition to exist. If the Ministry of Transportation does intervene
and sets tariffs, the rates it sets may be too low to allow us to operate
profitably.

      The Mexican railroad services law and regulations and the concession
establish several circumstances under which the concession will terminate,
including by revocation by the Ministry of Transportation, surrender by TFM of
its rights under the concession, statutory appropriation or liquidation or
bankruptcy of TFM. The Mexican railroad services law and regulations sets out
the circumstances under which the concession may be revoked. These include: (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 tariffs higher than registered tariffs;
(5) a change in TFM's nationality; (6) our assignment of, or creation of liens
on, the concession without the Ministry of Transportation's approval; (7)
failure to maintain the insurance coverage specified in the Mexican railroad
services law and regulations; and (8) noncompliance with any term or condition
of the Mexican railroad services law and regulations, related regulations or the
concession. In the cases of (1), (6) and (7) 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 our rail lines
and all other fixtures covered by the concession, as well as all improvements
made by us, 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 has agreed that, except with respect to
those events which constitute grounds for automatic revocation of the concession
(as described in clauses (1), (6) and (7) in the paragraph above), it will
notify those creditors that provided financing for Grupo TFM's acquisition of
its equity interest in TFM and are identified by TFM and Grupo TFM to the
Ministry of Transportation of all events which constitute grounds for revocation
of the concession 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

                                      -13-

<PAGE>

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.

      If the Mexican government terminates the concession for reasons of public
interest, 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 connection with
our operations of our rail lines in the case 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.

      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. These payments may not be sufficient to
compensate us for our losses and may not be timely made.

      See Item 4B, "Information on the Company -- Business Overview -- The
Concession."

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
result also 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 rapid growth of cross-border traffic in recent
years has contributed to congestion on the international bridge at the Laredo
border gateway, which is expected to continue in the near future. This may
adversely affect our business.

OUR STRATEGIC PARTNERS, GRUPO TMM AND KCS, ARE INVOLVED IN A DISPUTE AND WE ARE
INVOLVED IN OTHER LEGAL PROCEEDINGS WITH KCS.

      We are a subsidiary of Grupo TFM, which holds 80.0% of our equity
representing 100.0% of our shares with unrestricted voting rights. Grupo TMM and
KCS are the principal shareholders of Grupo TFM. As a result of their indirect
ownership of our capital stock, Grupo TMM and KCS are able to direct our
policies and operations and elect all but one of our directors. Although Grupo
TMM holds a majority voting interest in Grupo TFM, decisions on matters that are
material to Grupo TFM's and our operations and business require the approval of
both principal shareholders or of their representatives on Grupo TFM's board of
directors.

      Differences of views between our strategic partners have arisen in the
past, currently exist, and may arise in the future. Such differences may result
in delayed decisions or in failures to agree upon major matters which could
adversely affect our operations and business.

      In addition, although we believe that the trucking and specialized
shipping operations of Grupo TMM and the railroad operations of a subsidiary of
KCS, Kansas City Southern Railway Company ("KCSR"), are generally complementary
to, and not competitive with our operations, we cannot assure you that they will
not compete with our operations. Also, KCS or Grupo TMM may at times be required
to negotiate with us with respect to the allocation of revenues generated by
shipments both over our rail lines and KCSR's rail lines. Conflicts of interest
with or between these strategic partners could have a material adverse effect on
our ability to operate successfully.

      Grupo TMM and KCS are currently involved in a dispute regarding the
Acquisition Agreement executed by TMM and KCS on April 20, 2003 relating to the
sale of Grupo TFM. Under the terms of the Acquisition Agreement, KCS was to
purchase Grupo TMM's interest in Grupo TFM in exchange for cash, shares of KCS
and an additional cash earnout payment which was contingent on the timing of
certain events, such as receipt of the VAT Proceeds and repurchase of the shares
of TFM owned by the Mexican government. On August 18, 2003, Grupo

                                      -14-

<PAGE>

TMM's shareholders voted to reject the Acquisition Agreement and Grupo TMM
terminated the Acquisition Agreement on August 22, 2003.

      KCS has disputed Grupo TMM's right to terminate the Acquisition Agreement
and alleged certain breaches by Grupo TMM of the Acquisition Agreement. Under
the terms of the Acquisition Agreement, the parties submitted these disputes to
binding arbitration. An arbitration panel (the "arbitration panel") was chosen
in accordance with the terms of the Acquisition Agreement. KCS obtained a
preliminary injunction from the Delaware Chancery Court enjoining Grupo TMM from
violating the terms of the Acquisition Agreement pending a subsequent decision
by a panel of arbitrators regarding whether the Acquisition Agreement was
properly terminated. On October 31, 2003, KCS filed a demand for arbitration
before the American Arbitration Association, pursuant to the Acquisition
Agreement's dispute resolution provisions seeking, among other things, a
declaration that the Acquisition Agreement was wrongfully terminated and that
Grupo TMM breached its obligations thereunder. KCS is seeking specific
performance of Grupo TMM's obligations under the Acquisition Agreement or, in
the alternative, monetary damages in the amount of at least $500 million. On
November 18, 2003, Grupo TMM filed a response denying KCS's allegations and
asserting counterclaims requesting, among other things, declaratory relief in
the form of a finding that Grupo TMM properly terminated the Acquisition
Agreement and awarding Grupo TMM damages for KCS's breach of the Acquisition
Agreement.

      On December 8, 2003, Grupo TMM and KCS participated in a preliminary
hearing with the arbitrators during which the arbitrators deliberated whether
the issue of the Acquisition Agreement's continued effectiveness should be
bifurcated from the other issues in the case. On December 22, 2003, the
arbitration panel bifurcated the issue of whether Grupo TMM properly terminated
the Acquisition Agreement from the other disputed issues between the parties and
scheduled a hearing on that issue. On February 2, 3 and 4, 2004, a hearing was
held in New York on the issue of whether Grupo TMM's termination was proper.
Grupo TMM maintained that it properly terminated the Acquisition Agreement while
KCS sought a declaration that the Acquisition Agreement was wrongfully
terminated. On March 19, 2004, the arbitration panel issued an Interim Award in
which it concluded that the rejection of the Acquisition Agreement by Grupo
TMM's shareholders in their vote on August 18, 2003 did not authorize Grupo
TMM's termination of the Acquisition Agreement. Accordingly, the Acquisition
Agreement remains in force and binding on the parties until otherwise terminated
according to its terms or by law. In reaching its conclusion, the arbitration
panel specifically declined to rule on the issue of whether approval by Grupo
TMM's shareholders is a "condition" under the Acquisition Agreement. On April 4,
2004, the arbitration panel issued an order, which was stipulated to by KCS and
Grupo TMM, providing that the parties agreed "not to request a scheduling order
for a further hearing in the arbitration at this time" and that "each party
reserves the right to request a scheduling order for a further hearing at any
time." In a stipulation signed by Grupo TMM and KCS and accepted by the
arbitration panel, the two companies have agreed to discharge in good faith all
of the obligations of the Acquisition Agreement.

      We cannot predict the ultimate outcome of any further arbitration on the
remaining disputed issues. See Item 8A, "Financial Information -- Consolidated
Statements and Other Financial Information -- Legal Proceedings -- Dispute
between Grupo TMM and KCS."

      In addition, KCS and certain of its representatives have initiated
judicial proceedings in Mexico seeking the nullification of several Grupo TFM
and TFM board of directors meetings which have taken place since August 25,
2003. KCS has also initiated another proceeding seeking the nullification of
Grupo TFM's November 24, 2003 shareholders' meeting. We have no assurance
regarding the outcome of these proceedings resulting from these claims. See Item
8A, "Financial Information -- Consolidated Statements and Other Financial
Information -- Legal Proceedings -- Other Legal Proceedings."

THE MEXICAN GOVERNMENT HAS THE RIGHT, SUBJECT TO CERTAIN CONDITIONS, TO REQUIRE
GRUPO TFM TO PURCHASE THE MEXICAN GOVERNMENT'S 20% INTEREST IN TFM.

      The Mexican government retained a 20.0% interest in TFM in connection with
the privatization of TFM in 1997, and pursuant to the Purchase-Sale Agreements
dated January 31, 1997 and June 9, 1997 (the "Put Agreements"), 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. The price of the Mexican
government's interest, as indexed for Mexican

                                      -15-

<PAGE>
inflation, was approximately 1,570.3 million UDIs (which are units of
measurement that account for the effects of inflation), representing Ps. 5,264
million, or approximately $469.4 million, as of December 31, 2003. The estimated
fair market value of the Mexican government's interest as of December 31, 2003
was $475.6 million (the fair market value represents the price that a third
party would be willing to pay).

      There is no assurance that Grupo TFM, Grupo TMM or KCS will have
sufficient funds to acquire the Mexican government's interest.

      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 Put Agreements 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 8A, "Financial Information -- Consolidated Statements and Other
Financial Information -- Legal Proceedings -- Mexican Government's Put on its
Equity Interest in TFM."

IF GRUPO TMM FAILS TO SUCCESSFULLY COMPLETE ITS PROPOSED FINANCIAL
RESTRUCTURING, OUR BUSINESS MAY BE NEGATIVELY IMPACTED.

      Grupo TMM's 9.50% notes due 2003 (the "TMM 2003 notes") matured on May 15,
2003, and Grupo TMM did not make the principal and interest payments on the TMM
2003 notes which were due on that date. As a result, Grupo TMM defaulted on
those obligations. Those defaults, in turn, caused cross-defaults under certain
of Grupo TMM's other obligations, including Grupo TMM's 10.25% senior notes due
2006 (the "TMM 2006 notes"). Grupo TMM has issued a press release announcing a
financial restructuring through: (i) an out-of-court restructuring, or
"recapitalization plan", consisting of an offer to exchange all of the TMM 2003
notes and TMM 2006 notes for new notes due 2007 and a consent solicitation to
remove substantially all of the restrictive covenants and certain events of
default in the indenture governing any TMM 2006 notes which remain outstanding
after the exchange offer or (ii) an in-court restructuring through the
solicitation of acceptances under Chapter 11 of the U.S. Bankruptcy Code on
substantially the same terms as the recapitalization plan.

      If Grupo TMM's financial restructuring is not consummated, Grupo TMM may
be subject to an involuntary Mexican or U.S. reorganization related proceeding.
As a result, we may lose the benefits we derive from the strategic relationship
we have with Grupo TMM, including Grupo TMM's extensive experience, strategic
advice and key financial and administrative services. The loss of such benefits
could have a material adverse effect on our business.

      See Item 4B, "Business Overview -- Strategic Partners -- Grupo TMM."

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 and
Ferrosur in the south of Mexico. We also have trackage rights agreements with
Ferrosur and a terminal operations agreement with the Mexico City Terminal
Railroad and we are negotiating and expect to have a trackage rights agreement
with Ferromex. In addition, TFM and each of the concessionaires of Ferromex and
Ferrosur has a 25.0% interest in the Mexico City Terminal Railroad. 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 will depend
in part on our ability to maintain these agreements with other railroads and
third parties. Our failure to enter into these agreements, or the termination of
these agreements, could adversely affect our business, financial condition and
results of operations. The other parties to these agreements may not faithfully
execute their obligations under their agreements or arrangements with us, and
many of these other parties are or may become our competitors. 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.

                                      -16-

<PAGE>

OUR RESULTS FROM OPERATIONS ARE HEAVILY DEPENDENT ON FUEL EXPENSES. IF OUR
PRIMARY FUEL SUPPLY CONTRACT IS TERMINATED, OR IF FUEL PRICES SUBSTANTIALLY
INCREASE, OUR OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.

      Approximately 98% 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 Petroleos Mexicanos or "PEMEX" (Mexican
Petroleum), a government-owned entity exclusively responsible for the
distribution and sale of diesel fuel in Mexico. We are party to a fuel supply
contract with PEMEX of indefinite duration. Either party may terminate the
contract upon 30 days' written notice to the other at any time. If the fuel
contract is terminated and we are unable to acquire diesel fuel from alternative
sources on acceptable terms, our operations could be materially adversely
affected. In addition, instability in the Middle East may result in an increase
in fuel prices. 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 results of operations. We experienced decreases
of 11.2% in 2002 and 8.7% in 2001 in our average price of fuel per gallon. In
2003, our average price of fuel per gallon increased by 24.2% from 2002. The
price of diesel fuel may continue to increase, which could have an adverse
effect on our future results of operations.

WE FACE POSSIBLE CATASTROPHIC LOSS AND LIABILITY.

      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,
liabilities or increased 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 the
Mexico City Terminal and significant portions of our customer base, could have a
material adverse effect on our operations. We have acquired insurance that is
consistent with industry practice 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 to
restore service without a significant interruption to operations.

WE FACE POTENTIAL ENVIRONMENTAL LIABILITY.

      Our operations are subject to general Mexican federal and state laws and
regulations relating to the protection of the environment. The Procuraduria
Federal de Proteccion al Ambiente (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 Secretaria del Medio Ambiente y Recursos Naturales (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. See Item 4B, "Information on
the Company -- Business Overview -- Environmental Regulation."

      We are responsible for the costs of environmental compliance associated
with our ongoing operations. Pursuant to our concession, Ferrocarriles
Nacionales de Mexico, S.A. de C.V. ("FNM") is responsible for any environmental
damage caused before the commencement of our operations, and both the Mexican
government and FNM will indemnify us for any environmental liability relating to
soil, subsoil or groundwater contamination arising from acts or omissions
attributable to FNM that occurred before Grupo TFM's acquisition of TFM's
shares. 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 results
of operations, cash flows or financial condition.

                                      -17-

<PAGE>

      We acquired 100.0% of the outstanding shares of Mexrail, Inc. ("Mexrail")
in February 2002 and sold a 51.0% equity interest in Mexrail to KCS in May 2003
pursuant to a stock purchase agreement dated April 15, 2003. In September 2003,
we reacquired the 51.0% equity interest previously transferred to KCS. As a
result of our ownership of Mexrail, we may also incur other environmental
liabilities with respect to U.S. environmental laws. The U.S. Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund")
and similar state laws (known as Superfund laws) impose liability for the cost
of remedial or removal actions, natural resources damages and related costs at
certain sites identified as posing a threat to the environment or public health.
CERCLA imposes strict liability on the owners and operators of facilities in
which hazardous waste and other hazardous substances are deposited or from which
they are released or are likely to be released into the environment. Liability
may be imposed, without regard to fault or the legality of the activity, on
certain classes of persons, including the current and certain prior owners or
operators of a site and persons that arranged for the disposal or treatment of
hazardous substances. Liability is imposed on a joint and several basis. In
addition, other potentially responsible parties, adjacent landowners or other
third parties may initiate cost recovery actions or toxic tort litigation
against sites subject to CERCLA or similar state laws.

MEXICAN REGULATORY, POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH EMERGING MARKET
ECONOMIES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

      The Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Accordingly, Mexican
governmental actions concerning the economy and state-owned enterprises could
have a significant impact on Mexican private sector entities in general and TFM
in particular, as well as on market conditions, prices and returns on Mexican
securities, including securities issued by us. Our financial condition and
results of operations and prospects may also be affected by currency
fluctuations, inflation, interest rates, regulation, taxation, social
instability and other political, social and economic developments in or
affecting Mexico.

      The national elections held on July 2, 2000 ended 71 years of rule by the
Institutional Revolutionary Party with the election of President Vicente Fox
Quesada, a member of the National Action Party and resulted in the increased
representation of opposition parties in the Mexican Congress and in mayoral and
gubernatorial positions. Although there have not yet been any material adverse
repercussions resulting from this political change, multiparty rule is still
relatively new in Mexico and could result in economic or political conditions
that could materially and adversely affect our operations. We cannot predict the
impact that this political landscape will have on the Mexican economy.

      Securities of companies in emerging market countries tend to be influenced
by economic and market conditions in other emerging market countries. Emerging
market countries, including Argentina and Brazil, have recently been
experiencing significant economic downturns and market volatility. These events
have had an adverse effect on the economic conditions and securities markets of
other emerging market countries, including Mexico.

      The Mexican economy in the past has suffered balance of payment deficits
and shortages in foreign exchange reserves. 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. Any restrictive exchange
control policy could adversely affect our ability to obtain Dollars or to
convert Pesos into Dollars for purposes of making interest and principal
payments on our indebtedness, to the extent that we may have to effect those
conversions. This could have a material adverse effect on our business and
financial condition.

      In addition, the value of the Peso relative to the Dollar has been
volatile in the past. After a five-year period of controlled devaluation of the
Peso, on December 19, 1994, the value of the Peso dropped sharply as a result of
pressure against the currency. This decline, among other factors, precipitated
an economic crisis in Mexico that continued for several years. Although the
value of the Peso in the past few years had been appreciating relative to the
Dollar, the Peso depreciated 13.9% in 2002 and 7.5% in 2003 against the Dollar.
Any additional devaluation of the Peso would cause the Peso cost of our
Dollar-denominated debt to increase. Furthermore, currency instability may
affect the balance of trade between the U.S. and Mexico.

      Mexico also has a history of high levels of inflation, and may experience
inflation in the future. During most of the 1980s and during the mid- and late
1990s, Mexico experienced periods of high levels of inflation. The

                                      -18-

<PAGE>

annual rates of inflation, as measured by changes in the Mexican National
Consumer Price Index, for the five years from 1999 through 2003, as provided by
Banco de Mexico, Mexico's central bank, were:

<TABLE>
<S>                                             <C>
1999.....................................       12.3%
2000......................................       9.0%
2001......................................       4.4%
2002......................................       5.7%
2003.....................................        4.0%
</TABLE>

      In 2003, the Mexican inflation rate hit its lowest levels in over 30
years. We cannot give any assurance that the Mexican inflation rate will
continue to decrease or maintain its current level for any significant period of
time. A substantial increase in the Mexican inflation rate would have the effect
of increasing our costs including salaries, some purchased services and other
costs denominated in Pesos, which could adversely affect our results of
operations and financial condition. High levels of inflation may also affect the
balance of trade between the U.S. and Mexico, which could also adversely affect
our results of operations.

      Mexican political events may also affect significantly our operations and
the performance of Mexican securities, including securities issued by us. In
addition, a change in economic policy could have a material adverse effect on
our business, financial condition, prospects and results of operation. We are
unable to predict whether any future political or economic events in Mexico
could impact the Mexican transportation regulatory environment.

INVESTORS MAY BE UNABLE TO ENFORCE JUDGMENTS AGAINST US.

      TFM and Grupo TFM are stock corporations organized under the laws of
Mexico. Most of the directors and executive officers of TFM and Grupo TFM are
residents of Mexico, and all or a significant portion of the assets of these
directors and executive officers and most of the assets of TFM and Grupo TFM are
located in Mexico. As a result, it may not be possible for investors in our
securities to effect service of process outside Mexico upon us or our directors
or executive officers. Similarly, in respect of actions against us, our
directors or executive officers, there is doubt as to the enforceability, in
original actions in Mexican courts, of liabilities predicated solely on the U.S.
federal securities laws and as to the enforceability in Mexican courts of
judgments of U.S. courts obtained in actions predicated upon the civil liability
provisions of the U.S. federal securities laws.

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, the Mexico City Terminal Railroad, 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 Leon. 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 222305. TFM is a sociedad anonima 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 an additional 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 the Mexico City Railroad and Terminal. The concession gives
TFM the exclusive right to provide freight transportation services over the
Northeast Rail Lines for the initial 30 years of our 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. We have a
non-exclusive right to provide such services for the remainder of the term of
the concession.

      We commenced operations on June 24, 1997, after being awarded a 50-year
concession by the Mexican government, renewable subject to certain conditions
for an additional 50 years, to operate our rail lines, formerly

                                      -19-

<PAGE>

known as the Northeast Rail Lines. Prior to our commencement of operations, our
rail lines had not been operated as a stand-alone rail system but had been
operated as an integrated part of FNM, the Mexican government-controlled Mexican
rail operator. Our 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 is a non-operating holding company, its principal asset being
the stock of TFM. Grupo TFM is a sociedad anonima de capital variable
incorporated under Mexican law on July 12, 1996 for a term of 99 years. We
purchased the equity interest of the Mexican government in our parent company,
Grupo TFM (the "call option shares"), acquired by the Mexican government in
connection with the financing of the privatization of our rail lines in June
1997. The call option shares have restricted voting rights and were held
indirectly by the Mexican government through FNM and Nafin, as trustee. Grupo
TFM is a joint venture company owned 38.5% by Grupo TMM, 36.9% by KCS and
following our acquisition of the call option shares on July 29, 2002, 24.6% by
TFM.

      Grupo TFM was formed by TMM, KCS and Grupo Servia, S.A. de C.V. ("Grupo
Servia") which was then TMM's principal shareholder, for the purpose of
participating in the privatization of the Mexican railroad system. 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, giving TMM voting
control of Grupo TFM. 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 the 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 and (3)
equity capital contributed by TMM, Grupo Servia and KCS.

      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 the Texas
Mexican Railway Company. In May 2003, TFM sold a 51.0% interest in Mexrail and
its wholly-owned subsidiary, the Texas Mexican Railway Company, to KCS for $32.6
million pursuant to a stock purchase agreement dated April 15, 2003. The Texas
Mexican Railway Company operates a 521-mile railway between Laredo, Houston and
Beaumont, Texas. Mexrail owns the northern, or U.S., portion of the
international rail bridge at Laredo. 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. 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 U.S. Surface Transportation Board 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 owns 100% of Mexrail.

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

                                      -20-

<PAGE>

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.

      Through the end of 1999, passenger transportation service in our territory
was offered only between Mexico City and Queretaro, which was serviced by two
regular trains per week. The Mexican government discontinued this service in
1999. However, the Mexican government in the future could grant concessions for
passenger service over our lines to passenger rail operators. To date, passenger
service has not materially interfered with our freight operations, and we do not
anticipate that passenger service will materially interfere with our future
freight operations.

      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. See Item 3D, "Risk Factors -- Our
strategic partners, Grupo TMM and KCS, are involved in a dispute and we are
involved in other legal proceedings with KCS" and Item 8A, "Financial
Information -- Consolidated Statements and Other Financial Information -- Legal
Proceedings -- Dispute between Grupo TMM and KCS."

      Both TFM and Grupo TFM's headquarters are located at Av. Periferico Sur
No. 4829, 4to Piso, Col. Parques del Pedregal, Mexico, D.F. 14010, Mexico, 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.

CAPITAL EXPENDITURES AND DIVESTITURES

      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.

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        --------------------------
                                                          2001     2002      2003
                                                          ----     ----      ----
                                                         (in millions of Dollars)
<S>                                                     <C>       <C>       <C>
CAPITAL EXPENDITURES BY AREA

     Locomotives and freight cars...........            $  11.1   $  12.2   $ 18.4
     Rail track(1)..........................               68.9      70.5     48.7
     Telecommunication......................                3.2       3.0      1.7
     Other..................................                2.0       3.7      4.3
                                                        -------   -------   ------
     Total..................................            $  85.2   $  89.4   $ 73.1
                                                        =======   =======   ======
</TABLE>

-------------------------
(1)   In 2003, we made capital expenditures in the amount of $73.1 million,
      $48.7 million of which was primarily for improvement of our rail line and
      $18.4 million of which was in locomotives and freight cars upgrades. In
      2002, we made capital expenditures in the amount of $89.4 million, $35.8
      million of which was primarily for the rehabilitation of our route between
      Mexico City and Lazaro Cardenas, among other rail lines, $5.3 million of
      which was for the construction of the Sanchez freight yard, $6.6 million
      of which was for the construction of the Monterrey Intermodal Terminal and
      $8.0 million of which was for the construction of the Toluca Intermodal
      Terminal. In 2001, we made capital expenditures in the amount of $85.2
      million, $29.6 million of which was primarily for the rehabilitation of
      the Lazaro Cardenas line, $9.0 million of which was for the rehabilitation
      of the main line of the Texas Mexican Railway Company, $9.0 million of
      which was for the purchase of the Rosenburg-Victoria line and right of way
      from the Union Pacific Railroad and $9.9 million of which was for
      locomotive overhaul expenses.

                                      -21-
<PAGE>
<TABLE>
<CAPTION>

                                                         YEARS ENDED DECEMBER 31,
                                                       ----------------------------
                                                       2001(1)     2002       2003
                                                       -------    ------     ------
                                                         (in millions of Dollars)
<S>                                                    <C>        <C>        <C>
CAPITAL DIVESTITURES

     Freight cars...........................           $   4.5    $  5.1     $  3.4
     Concession equipment...................               3.4       1.9        1.5
     Other assets...........................               1.7       0.5        0.4
                                                       -------    ------     ------
     Total..................................           $   9.6    $  7.5     $  5.3
                                                       =======    ======     ======
</TABLE>

-------------

(1) This figure does not reflect the sale of the La Griega-Mariscala line to the
    Mexican government.

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 and the U.S. and Canada. Our rail lines consist of 4,245
kilometers (2,638 miles) of main track. In addition, we have trackage rights
entitling us to run our trains over 950 kilometers (590 miles) of track of other
Mexican railroad operators.

      We are the exclusive provider of freight transportation services over our
lines under the concession for the initial 30 years of our 50-year concession
period, subject to certain trackage rights. We have a non-exclusive right to
provide such services for the remainder of the term of the concession.

      We seek to establish our railroad as the primary inland freight
transporter linking Mexico with the U.S. and Canadian markets. Our rail lines
connect the most populated and industrialized regions of Mexico with the
principal border gateway between the U.S. at Laredo, Texas and Mexico at Nuevo
Laredo, Tamaulipas. We are the only Mexican railroad that serves the main
U.S.-Mexico border crossing at Laredo-Nuevo Laredo, which is the largest freight
exchange point between the U.S. and Mexico. In addition, we serve three of
Mexico's most important seaports.

      Our strategic objective is to increase our revenues by offering efficient
and reliable service in order to recapture Mexican market share lost to the
trucking industry during the period of government control of the rail system,
and to capitalize on increased traffic volumes resulting from growth in Mexican
domestic and foreign trade and the integration of the North American economy
through NAFTA. Our route structure enables us to benefit from this growing NAFTA
trade. As the operator of the primary and most direct rail corridor from the
U.S. border to Mexico City over which the majority of NAFTA traffic is hauled,
we believe that we provide the vital link for customers that wish to connect the
major industrialized centers of Mexico with the U.S. and Canadian markets.

THE CONCESSION

      We hold a 50-year concession title, renewable under certain conditions for
an additional 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 to be granted to other Mexican rail
operators. In conjunction with our concession, which took effect in June 1997,
Grupo TFM acquired 80.0% of the shares of TFM. 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 the Mexico City Terminal. 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 fee 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.

      We are required to grant trackage rights along our rail lines to Ferromex,
Ferrosur, two short line railroads and the Mexico City Terminal Railroad. The
Ministry of Transportation has the right to grant exclusive passenger service
concessions utilizing our rail lines to a concessionaire other than us. Under
the concession and the Mexican

                                      -22-

<PAGE>

railroad services law and regulations, we may freely set our rates unless the
Mexican Antitrust Commission determines that there is not effective competition
in Mexico's rail industry, taking into account alternative rail 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 the 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.

      The Mexican railroad services law and regulations and the concession
establish several circumstances under which the concession will terminate,
including by revocation by the Ministry of Transportation, surrender by TFM of
its rights under the concession, statutory appropriation or liquidation or
bankruptcy of TFM. The Mexican railroad services law and regulations sets out
the circumstances under which the concession may be revoked. These include: (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 tariffs higher than registered tariffs;
(5) a change in TFM's nationality; (6) our assignment of, or creation of liens
on, the concession without the Ministry of Transportation's approval; (7)
failure to maintain the insurance coverage specified in the Mexican railroad
services law and regulations; and (8) noncompliance with any term or condition
of the Mexican railroad services law and regulations, related regulations or the
concession. In the cases of (1), (6) or (7) 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 our rail lines
and all other fixtures covered by the concession, as well as all improvements
made by us, 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 has agreed that, except with respect to
those events which constitute grounds for automatic revocation of the concession
(as described in clauses (1), (6) and (7) in the paragraph above), it will
notify those creditors that provided financing for Grupo TFM's acquisition of
its equity interest in TFM and are identified by TFM and Grupo TFM to the
Ministry of Transportation of all events which constitute grounds for revocation
of the concession 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. We are also responsible for compliance with
efficiency and safety standards set forth in the concession, which are based on
standards of the American Association of Railroads ("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 our
acquisition of TFM's shares. We assumed full responsibility for the

                                      -23-

<PAGE>

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 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.

BUSINESS STRATEGY AND DEVELOPMENT SINCE COMMENCEMENT OF OPERATIONS

      BUSINESS STRATEGY

      Our business strategy is to increase our revenues by offering efficient
and reliable service in order to recapture market share lost to the trucking
industry during the period of government control of the rail system in Mexico,
and to capitalize on increased traffic volumes resulting from growth in Mexican
domestic and foreign trade and the integration of the North American economy
through NAFTA. The key elements of our strategy are to:

      -  Increase revenue growth by converting traffic from trucking to rail
         transport. Prior to privatization of the railroad system, the Mexican
         railroad industry lost significant market share of long-haul commodity
         shipments to the trucking industry due to the failure of FNM to provide
         efficient and reliable customer service, as well as the failure to
         provide specialized equipment necessary to transport certain types of
         products by rail. We believe that we have converted and will continue
         to convert traffic from trucking to rail transport in part because we
         offer (1) more reliable, punctual and safer customer-oriented rail
         service than that previously provided by FNM and (2) significant
         advantages over trucking. We have significantly reduced average transit
         times of our scheduled trains; reduced cargo theft from cars traveling
         on our routes through increased security and surveillance measures;
         increased our overall rail capacity by reducing the number of cars that
         remain in our rail yards; increased the capacity of our trains by
         increasing the average number of cars per train; and increased the
         average speed of trains on our system. In addition, we have added
         bi-level car carriers and double-stack container carriers to our fleet
         to serve the specialized needs of the automotive and intermodal
         sectors, respectively, and we operate unit trains dedicated to
         transporting fuels and other products for some of our major customers.
         Our ability to transport large volumes of bulk products of significant
         weight and density, including grain, steel, automotive products,
         cement, sugar, beer, coal, mineral products and chemicals, over
         extended distances with minimal operating personnel provides us with a
         competitive advantage over trucking as well as with attractive
         opportunities for expanding our business. In addition, Mexico has
         adopted certain international standards establishing stricter weight
         and dimension limitations for the trucking sector. We believe that
         these limits have increased the costs of trucking and have created an
         incentive for trucking companies to focus their efforts on the
         transport of low-volume, high-price products over shorter distances.
         This should allow us to strengthen our relative competitive position in
         other market sectors, particularly the transport of intermodal freight,
         paper products, finished automobiles and petrochemicals.

      -  Exploit growth in Mexican foreign trade. We believe that growth in
         Mexican commerce, as well as expected growth in total trade flows, as a
         result of NAFTA, among other factors, should enable us to continue to
         increase our revenues. We expect to continue to participate
         significantly over the long term in the growth in NAFTA traffic between
         Mexico, the U.S. and Canada. We believe that our routes are integral to
         Mexico's foreign trade and that we are well-positioned to capitalize on
         trade expansion as a result of Mexico's free trade agreements with the
         European Union and other Latin American countries as well as NAFTA. We
         believe that NAFTA trade and other Mexican foreign trade will continue
         to grow over the long term.

                                      -24-

<PAGE>

      -  Further improve operating efficiency and productivity. We continue to
         develop operating initiatives to support our strategy, including the
         implementation of railroad operating practices in use on Class I U.S.
         and Canadian railroads, 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 leasing more railcars, maintaining our rail infrastructure to
         Class I railroad standards, making capital improvements on our
         secondary rail lines, building new freight yards and intermodal
         terminals, enhancing communications systems and leasing new intermodal
         facilities.

      DEVELOPMENT SINCE COMMENCEMENT OF OPERATIONS

      We have significantly improved the operations of our rail lines by
focusing on providing reliable and comprehensive customer service, implementing
U.S. and Canadian railroad operating practices and making capital improvements
to our track, systems and equipment designed to reduce costs and increase
operating efficiencies. In 2003, our operating ratio was 80.9%, compared with an
operating ratio of 95.4% for the first six months following commencement of our
operations. Our operating ratio is better than the average operating ratio for
the eight Class I railroads in the U.S. Operating ratio is an industry
efficiency measure which represents a railroad's operating expenses as a
percentage of its transportation revenues. Since June 1997 we have:

      -  significantly reduced average transit times of our scheduled trains
         between Nuevo Laredo and Mexico City;

      -  reduced the number of cars that remain in our rail yards, thereby
         increasing our overall car capacity;

      -  increased the capacity of our trains by increasing the average number
         of cars per train and increasing the average speed of trains on our
         system;

      -  substantially reduced automotive cargo theft and vandalism from cars
         traveling on our routes through increased security and surveillance
         measures;

      -  reduced our full-time labor force from approximately 5,300 employees at
         the end of 1997 to 3,392 employees as of December 31, 2003;

      -  equipped all trains on the main line with end-of-train devices and
         installed hot box detectors, dragging equipment, spring switches,
         switch point portion indicators and other automatic equipment along our
         routes, which have both allowed us to reduce the size of train crews
         from six to two and have eliminated the need to stop trains
         intermittently for inspections;

      -  installed a radio-based track warrant control system over approximately
         2,800 kilometers of track, or approximately 65.0% of our rail lines;

      -  installed a centralized traffic control system, which allows a central
         dispatcher in Monterrey to manage track operations between Huehuetoca
         and Nuevo Laredo;

      -  extensively overhauled the locomotives and rolling stock we acquired
         from the Mexican government; for example, since 1997 we have acquired
         7,683 railcars under operating leases;

      -  upgraded our rolling stock and introduced state-of-the-art locomotives
         that comply with U.S. standards, thereby allowing them to operate in
         the U.S., which has enabled us to interchange with major U.S.
         railroads;

      -  benefited from 48.2% more horsepower per unit generated by our new fuel
         efficient locomotives, allowing us to reduce fuel consumption and to
         haul longer trains with fewer locomotives;

      -  more than doubled the railcar capacity of the international bridge at
         Laredo-Nuevo Laredo from 1,300 to 3,000 cars and reduced congestion on
         the bridge by conducting Mexican customs and Secretaria de Agricultura,
         Ganaderia, Desarrollo Rural, Pesca y Alimentacion (Ministry of
         Agriculture, Livestock,

                                      -25-

<PAGE>
         Rural Development, Fishery and Feeding) formalities at our new Sanchez
         freight yard in Nuevo Laredo which, when complete, will double our yard
         capacity and further reduce congestion at the U.S. border;

      -  extended 17 sidings on our tracks up to 10,000 feet to permit longer
         trains to operate on our main route;

      -  installed automatic equipment to update the advanced connection between
         terminals broadcasting information to the main frame;

      -  raised and removed the catenary to accommodate double-stack and
         intermodal trains based along the electrified double line between
         Pantaco and Queretaro; and

      -  in order to promote intermodal traffic, built and are leasing new
         intermodal facilities along our lines and have enlarged tunnels and
         raised or removed the electrified cable, or catenary, over our Buena
         Vista-Queretaro line to accommodate double-stack intermodal trains. We
         opened intermodal terminals in Monterrey, Toluca and San Luis Potosi to
         supplement our intermodal facilities.

      In 2003, our total revenues were $641.4 million, representing a decrease
of 2.9% from 2002. 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. Our customers include leading international and Mexican
corporations. Approximately 80% of our total revenues in 2003 were attributable
to international freight. The majority of this international freight was bound
to or from the U.S. and Canada, crossing the U.S.-Mexico border at Nuevo Laredo,
and most of the remainder came from overseas, principally through Mexico's
seaports.

      Imports into Mexico from the U.S., Canada and overseas represented
approximately 55.4%, 54.1% and 54.5% of our total revenues in 2001, 2002 and
2003, respectively.

NETWORK

      Under the concession, we have the right to use our rail lines, although
the Mexican government retains ownership of the track. 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 core routes serve the principal industrial and population centers of
Mexico while our feeder lines connect with the ports of Veracruz, Lazaro
Cardenas and Tampico, three of Mexico's most important seaports.

      We currently have intermodal terminals located in Monterrey, Toluca, San
Luis Potosi, and also access intermodal terminals at Queretaro, Guadalajara,
Ramos Arizpe and Encantada. In addition, we have direct access to intermodal
facilities at the ports of Tampico, Veracruz and Lazaro Cardenas and to
intermodal terminals at Altamira and Manzanillo through interline service with
Ferromex and in Mexico City through the Mexico City Terminal. We also have
access to intermodal terminals at Laredo operated by the Texas Mexican Railway
Company and the Union Pacific Railroad, 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 2001, 2002 and 2003.

<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31,
                                    --------------------------------------------------------------------------
                                           2001(1)                 2002(1)                    2003
                                    ----------------------   ----------------------    -----------------------
                                                PERCENT OF               PERCENT OF                 PERCENT OF
            TRAFFIC                 CARLOADS     CARLOADS    CARLOADS     CARLOADS     CARLOADS      CARLOADS
            -------                 --------    ----------   --------    ----------    --------     ----------
<S>                                 <C>         <C>          <C>         <C>           <C>          <C>
Local...........................     500,075        69.2%     551,863        74.2%      571,139         74.3%
Interline originated............     100,422        13.9       91,379        12.3       102,175         13.3
                                     -------       -----      -------       -----       -------        -----
   Total originated.............     600,497        83.1      643,242        86.5       673,314         87.6
                                     -------       -----      -------       -----       -------        -----
Interline received..............     100,756        13.9       84,903        11.4        91,102         11.9
Transient.......................      21,455         3.0       15,904         2.1         4,210          0.5
                                     -------       -----      -------       -----       -------        -----
   Total received...............     122,211        16.9      100,807        13.5        95,312         12.4
                                     -------       -----      -------       -----       -------        -----
    Total.......................     722,708       100.0%     744,049       100.0%      768,626        100.0%
                                     =======       =====      =======       =====       =======        =====
</TABLE>
----------------

(1) Amounts have been reclassified to conform with 2003 classifications.


                                      -26-
<PAGE>
      CORE ROUTES

      Our rail lines comprise five core routes. 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. Our rail lines provide exclusive rail access
to the U.S.-Mexico border crossing at Nuevo Laredo, the most important
interchange for freight between the U.S. and Mexico, through our 1,283-kilometer
route from Mexico City to Nuevo Laredo. We operate the southern half of the
international rail bridge, which spans the Rio Grande to connect Nuevo Laredo
with Laredo. In 2001, 2002 and during 2003, the majority 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. This route has the lowest grades of any rail route between the U.S. border
and Mexico City which translates into savings of both fuel and locomotive power.
Movements over the Mexico City-Nuevo Laredo route accounted for 56.3% of total
revenues in 2001, 62.5% of total revenues in 2002 and 63.2% of total revenues in
2003.

      Products transported through Nuevo Laredo include finished vehicles and
auto parts, grain, appliances, beer, chemicals, scrap paper and plastics. In
2001, 2002 and 2003, rail traffic representing $376.2 million, $412.9 million
and $405.2 million in revenues, respectively, was transported through Nuevo
Laredo on our rail lines, of which approximately 60.0%, 62.4% and 65.2%,
respectively, consisted of import traffic. In 2002, our revenues generated by
this route increased by approximately 9.8% from 2001. In 2003, our revenues
generated by this route decreased by approximately 1.9% from 2002.

      Mexico City - Lazaro Cardenas. We provide exclusive access to the port of
Lazaro Cardenas on the Pacific Ocean over our 791-kilometer route from Mexico
City. In 2001, 2002 and 2003, rail traffic representing $45.6 million, $37.4
million and $44.1 million in revenues, respectively, was transported through
Lazaro Cardenas. Traffic at Lazaro Cardenas is both domestic and import traffic,
consisting of grains, 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 Lazaro Cardenas also handles traffic for
export to Pacific Rim nations.

      Mexico City - Veracruz. Both TFM and Ferrosur serve the port of Veracruz
on the Gulf of Mexico. We serve Veracruz through a 464-kilometer route from
Mexico City. In 2001, 2002 and 2003, we transported rail traffic representing
$28.5 million, $33.6 million and $36.6 million in revenues, respectively,
through Veracruz, of which approximately 85.5%, 78.9% and 68.2%, 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 327-kilometer 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 and the Burlington
Northern and Santa Fe Railway Company ("BNSF"). At Matamoros, we have access to
the port of Brownsville, the nearest seaport to Monterrey, through our
interchange with the Union Pacific Railroad. In 2001, 2002 and 2003, rail
traffic representing $38.5 million, $46.8 million and $46.1 million in revenues,
respectively, crossed the Matamoros gateway, of which 95.6%, 80.6% and 73.2%,
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
6.0% of TFM's total revenues. In 2003, our revenues generated by these ports
increased approximately 14.0% over 2002. Altamira's port has benefited from the
trackage rights shared with Ferromex. In 2001, 2002 and 2003, we transported
rail traffic representing $35.3 million, $33.8 million and $38.5 million in
revenues, respectively, through these ports.

      TRAFFIC

      Since commencing operations, we believe that we have succeeded in
converting customers from trucking to rail transport because we offer reliable
rail service at competitive prices. We believe that our service is safer, more

                                      -27-
<PAGE>

punctual and more efficient than that previously provided by FNM, and that we
are able to serve certain shippers in , the agro-industrial chemical, automotive
and intermodal sectors that have time-sensitive transportation needs because
their products may be valuable, perishable or hazardous, or, in the case of
intermodal freight, because they must connect with other transportation
facilities at a predetermined date. Having substantially reduced cargo theft and
vandalism, improved transit times and on-time performance and focused on
customer service, we believe that we are well positioned to capture a larger
portion of the trucking sector's share of this traffic.

      Our total transportation revenues have significantly grown since we
started operations, increasing by 22.1% to $640.6 million in 2000 from 1999, by
4.2% to $667.8 million in 2001 from 2000, offset by minor decreases in revenue
of 1.0% to $660.5 million in 2002 from 2001 and 2.9% to $641.4 million in 2003
from 2002. In the last two years, our revenues have been negatively affected by
the slowdown of the U.S. economy.

      The following table sets forth, by product category, our revenues and
traffic volumes by carloads for 2001, 2002 and 2003.

<TABLE>
<CAPTION>
                                                                 FOR THE YEAR ENDED DECEMBER 31,
                             -----------------------------------------------------------------------------------------------------
                                           2001                               2002                             2003
                             ---------------------------------  ---------------------------------  ---------------------------------
                                                        % OF                               % OF                               % OF
     PRODUCT CATEGORY        CARLOADS     REVENUES    REVENUES  CARLOADS     REVENUES    REVENUES  CARLOADS     REVENUES    REVENUES
     ----------------        --------  -------------  --------  --------  -------------  --------  --------  -------------  --------
                                       (IN MILLIONS)                      (IN MILLIONS)                      (IN MILLIONS)
<S>                          <C>       <C>            <C>       <C>       <C>            <C>       <C>       <C>            <C>
Manufactured products,
 industrial products, metals
 and minerals...............  196,119  $       176.9    26.5%    227,067  $       195.6    29.6%    246,619  $       199.7    31.1%
Automotive products.........  150,987          171.4    25.7     131,926          154.1    23.3     120,883          124.7    19.4
Agro-industrial products....  136,000          167.4    25.0     110,956          140.8    21.3     122,114          142.9    22.3
Chemical and petrochemical
 products...................   77,159           98.6    14.8      83,406          107.7    16.3      88,522          113.2    17.6
Intermodal freight..........  162,443           42.6     6.4     190,694           56.3     8.5     190,488           52.4     8.2
Other.......................        0           10.9     1.6           0            6.0     0.9           0            8.5     1.3
                              -------  -------------   -------   -------  -------------   -------   -------  -------------   -------
TFM.........................  722,708  $       667.8   100.0%    744,049  $       660.5   100.0%    768,626  $       641.4   100.0%
Texas Mexican Railway
 Company....................   92,194           52.8              91,550           51.6             100,814           57.1
                              -------  -------------             -------  -------------             -------  -------------
    Total TFM...............  814,902  $       720.6             835,599  $       712.1             869,440  $       698.5
                              =======  =============             =======  =============             =======  =============
</TABLE>

-------------------

      MANUFACTURED PRODUCTS, INDUSTRIAL PRODUCTS, METALS AND MINERALS

      In 2003, $199.7 million, or 31.1% of our total transportation revenues,
were derived from the movement of industrial products, metals and minerals, an
increase of 2.1% over revenues generated in this product category in 2002.

      MANUFACTURED PRODUCTS AND INDUSTRIAL PRODUCTS

      The manufactured and industrial products that we transport include home
appliances, textiles, ceramic tile, scrap paper, glass, paper, beer and pulp. We
also transport a variety of consumer 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 Grupo Modelo, S.A. de C.V., the
makers of "Corona". During 2003, beer freight faced a contraction in carloads
and 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 will triple its volume.

      We have a long-term contract with Organizacion Mabe Corporacion, S.A. de
C.V. ("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

                                      -28-
<PAGE>

home appliance manufacturer, 49.0% of which is owned by the General Electric
Company ("GE"), that produces most of the gas and electric ranges sold in the
U.S. under the "GE" brand and refrigerators exports 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. We believe
that 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,
diapers, tissue 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 Mexico, S.A. de C.V.,
Smurfit S.A. and Corporacion Durango, S.A. de C.V. for domestic and
international consumption or are exported to Mexico by U.S. paper companies such
as Meadwestvaco, International Paper, Rayonier, Pacific and Weyerhaeuser.

      METALS AND MINERALS

      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 in Mexico are used for domestic consumption, as is steel produced in
Mexico. 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.
We believe there are opportunities for revenue growth in the steel and cement
industries.

      Mexican iron and steel mills have historically used modes of transport
other than rail for their finished products because of FNM'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
converting a portion of this traffic from truck to rail transport by providing
reliable service and 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 these plants and
mills along our rail lines. We currently transport iron, steel and other metals,
minerals and ore products from mills at Lazaro Cardenas to steel plants and
mills in northern Mexico, and exports consisting of 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 Lazaro Cardenas to the U.S. We also transport finished
products (steel coils) from the U.S. to the Mexican Automotive and Manufacturing
industries.

      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 companies in Mexico which move their products with us are
CEMEX, S.A. de C.V. ("CEMEX") and Cementos Apasco, S.A. de C.V. Due to its bulk
and density, cement is ill-suited for road transport and, as a result, is hauled
almost exclusively by rail.

      In 2003, this business unit benefited from the strong performance of the
construction, mining and basic metallic industries, which experienced average
growth of 3.5% during 2003, resulting in revenue growth of 9.5% during 2003 for
TFM in these products. Moreover, the U.S. imposition of tariffs on imports for
some finished steel products under Section 201 of the Trade Act of 1974 in 2002
and the high price levels for steel benefited the Mexican steel industry, which
revived domestic shipments and exports to the U.S. and China.

      AUTOMOTIVE PRODUCTS

      The automotive products we transport consist primarily of automotive parts
imported into Mexico for assembly in Mexican auto plants, and finished
automobiles exported to the U.S. and Canada, and to some extent imported
finished automobiles. Because the efficiency of our operations enables us to
provide what we believe are the shortest transit times from automotive plants to
the Laredo-Nuevo Laredo border crossing for transport into the U.S. and Canada,
we believe that we are the preferred rail carrier for automotive products along
this route.

                                      -29-
<PAGE>

      In 2003, $108.6 million or 26.8% of the transportation revenues generated
by our Mexico City-Nuevo Laredo route and 16.9% of our total transportation
revenues were derived from the transport of automotive products. Our automotive
revenues were $124.7 million that mean a decrease of approximately 19.1% in 2003
from 2002.

      This revenue reduction is still consequence of the decline in production
due to the continued recession in the U.S. In 2002, this segment experienced a
negative impact as a result of the closure of the DaimlerChrysler plant in Lago
Alberto, and the subsequent relocation of its production facilities to Encantada
in Coahuila. Also during 2002, Ford reduced exports from its Cuautitlan plant.
During 2003, vehicle production in Mexico decreased 15% due to demand
contraction in the U.S.

      Nevertheless, we believe that there is potential for growth in the
domestic automobile market and through our 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 previously provided by FNM and that provided by the
trucking industry.

      AGRO-INDUSTRIAL PRODUCTS

      In 2003, $142.9 million, or approximately 22.3% of our total
transportation revenues, were derived from the movement of agro-industrial
products, which represented an increase of 1.5% from our agro-industrial
revenues in 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, 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 Lazaro
Cardenas from where they are transported by rail to storage and processing
facilities in Mexico City, Monterrey, Puebla, Torreon, Veracruz and other
cities.

      A number of factors contributed to this segment's revenue increase. We
were successful in reaching other railroads territories through shuttle trains
facilities at San Luis Potosi and these allowed us to enhance our market share
in 6 percentage points transporting almost half of the total imports of grains
from U.S. and Canada. In the future we believe that we are well positioned to
capture an increasing portion of the trucking sector's share of the
agro-industrial market by providing service to customers along our rail lines
that is more reliable, punctual and safe than the service provided by FNM in the
past.

      CHEMICAL AND PETROCHEMICAL PRODUCTS

      In 2003, $113.2 million, or 17.6% of our total transportation revenues,
were derived from the movement of chemical and petrochemical products. Our
revenues increased by 5.1% in 2003 from 2002. Growth in this segment was a
consequence of the good performance in the transportation of petroleum coke.
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 Comision 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, and 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 combustoleum from refineries located in Salamanca and Tula to
Lazaro Cardenas. We also began transporting Liquid Petroleum Gas (LPG) for PEMEX
on the Houston-Monterrey route.

      Transportation of plastics for M&G Polimeros S.A. de Mexico, Exxon Mobil
S.A., Atofina Chemicals and Bulkmatic S.A. contributed to our revenue growth in
2003.

                                      -30-
<PAGE>

      INTERMODAL FREIGHT

      In 2003, $52.4 million, or 8.2% of our transportation revenues, were
derived from intermodal freight, which entails hauling products in freight
containers in combination with transport by water, rail and/or motor carrier. In
2003, our revenues in this product area decreased by 6.9% from 2002, which were
partially offset by revenues from the conversion of traffic from truck to rail
transport. Although we have been able to reduce our dependence on the automotive
industry, 65% of the intermodal freight segment continues to be related to
automotive traffic. The automotive industry experienced a slowdown in 2003, as
vehicle production in Mexico decreased 15% in 2003 due to demand contraction in
the U.S. See -- "Automotive Products."

      We participated in a spot movement of maritime containers from Manzanillo
to the U.S. during the west coast port strike in California. The intermodal unit
will have an opportunity for further growth with the opening of the Port of
Lazaro Cardenas to Containers.

      The volume of intermodal traffic in Mexico has been increasing in recent
years and with several major international maritime companies, including CP
Ships, APL (American President Line), Mearsk Sealand, Dicex, S.A., Navemar
Internacional, S.A. de C.V. and Mediterranean Shipping Company, shipping both
imported and exported products by intermodal freight. 95% of the overland
portion of this intermodal traffic in Mexico has been transported by truck.
Increasing the quality and frequency of our services serving maritime ports has
enabled us to convert some of this intermodal traffic from truck to rail
transport.

      FUEL FREIGHT SERVICE AGREEMENT

      On October 30, 2002 we entered into a freight service agreement with PEMEX
Refinacion, which will expire in 2006. In 2003, we provided services valued in
the amount of Ps. 48.6 million. For the remaining years under this agreement, we
are obligated to provide services valued in Pesos by the year specified as shown
below:

<TABLE>
<CAPTION>
                                      Minimum                   Maximum
                                      -------                   -------
                              (in thousands of Pesos)   (in thousands of Pesos)
<S>                                  <C>                        <C>
2004..................                    98,769                    246,922
2005..................                    98,769                    246,922
2006..................                    65,756                    164,390
                                     -----------                -----------
                                     Ps. 263,294                Ps. 658,234
                                     ===========                ===========
</TABLE>

STRATEGIC PARTNERS

      We have strategic relationships with Grupo TMM and KCS, the founders and
principal shareholders of Grupo TFM. Grupo TMM and KCSR, a wholly-owned
subsidiary of KCS, are leading companies engaged in businesses complementary to
ours, and each has alliances with other transportation service providers that
have positioned us to meet customers' freight transportation needs through a
fully integrated transportation network. We believe that Grupo TMM and KCSR,
with their long-standing relationships with freight customers and complementary
service providers, as well as their transportation expertise, enable us to
service rail customers both north and south of the U.S.-Mexico border that
choose to import products from, or export products to, markets in the U.S.

      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. See Item 3D, "Risk Factors -- Our
strategic partners, Grupo TMM and KCS, are involved in a dispute and we are
involved in other legal proceedings with KCS" and Item 8A, "Financial
Information -- Consolidated Statements and Other Financial Information -- Legal
Proceedings -- Dispute between Grupo TMM and KCS."

      GRUPO TMM

      Grupo TMM is one of the largest integrated logistics and transportation
companies in Mexico. Grupo TMM holds its equity interest in Grupo TFM indirectly
through its wholly-owned subsidiary, TMM Holdings, which, in turn, owns a 100%
voting interest and an approximate 96.6% economic interest in TMM Multimodal.

                                      -31-
<PAGE>

TMM Multimodal, in turn, has a 51% voting interest and a direct economic
interest of 38.4% in Grupo TFM. In January 2001, TMM consummated the purchase
from Grupo Servia of its 0.8% equity interest in Grupo TFM representing 1.1% of
Grupo TFM's unrestricted voting shares, which gave Grupo TMM voting control of
Grupo TFM. Beginning on December 31, 2000, Grupo TFM's financial statements were
consolidated with the financial statements of Grupo TMM and its consolidated
subsidiaries.

      We receive from Grupo TMM logistics services in major industrial cities
and at Mexican seaports in Acapulco and Tuxpan through facilities operated by
Grupo TMM and accessed by us. In addition, five of TFM's senior executives were
formerly senior executives of Grupo TMM. Although Grupo TMM sold its container
shipping business in December 1999, certain other operations in 2000, and its
entire interest in TMM Puertos y Terminales, S.A. de C.V. in 2003, these sales
have not had, nor do we believe they will have, a material adverse effect on the
benefits we derive from Grupo TMM. We believe that we benefit from Grupo TMM's
decades of experience in the Mexican transportation sector and in successfully
operating businesses in Mexico in highly regulated, unionized industries.

      We also rely on, and benefit from, Grupo TMM's extensive experience in
providing vehicle shipping services from auto manufacturing plants in Mexico and
specialized logistics support for the automotive industry to develop the
dedicated rail services we are providing to automobile manufacturers. In
addition, we are using Grupo TMM's experience in handling containers at numerous
Mexican railway installations to develop our services in the intermodal sector.

      TFM and Grupo TMM entered into a management services agreement dated May
9, 1997 pursuant to which Grupo TMM agreed to provide strategic advice and key
financial and administrative services to us. This management services agreement
was for an initial term of 12 months, renewable 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. On April 30, 2002, TFM and Grupo TMM entered into an amendment to the
management services agreement that provides for automatic renewal of the
agreement and compensates Grupo TMM for its services under the agreement.

      Grupo TMM's 9.50% notes due 2003 (the "TMM 2003 notes") matured on May 15,
2003, and Grupo TMM did not make the principal and interest payments on the TMM
2003 notes which were due on that date. As a result, Grupo TMM defaulted on
those obligations. Those defaults, in turn, caused cross-defaults under certain
of Grupo TMM's other obligations, including Grupo TMM's 10.25% senior notes due
2006 (the "TMM 2006 notes"). Grupo TMM has issued a press release announcing a
financial restructuring through: (i) an out-of-court restructuring, or
"recapitalization plan", consisting of an offer to exchange all of the TMM 2003
notes and TMM 2006 notes for new notes due 2007 and a consent solicitation to
remove substantially all of the restrictive covenants and certain events of
default in the indenture governing any TMM 2006 notes which remain outstanding
after the exchange offer or (ii) an in-court restructuring through the
solicitation of acceptances under Chapter 11 of the U.S. Bankruptcy Code on
substantially the same terms as the recapitalization plan.

      If Grupo TMM's financial restructuring is not consummated, Grupo TMM may
be subject to an involuntary Mexican or U.S. reorganization related proceeding.
As a result, we may lose the benefits we derive from the strategic relationship
we have with Grupo TMM, including Grupo TMM's extensive experience, strategic
advice and key financial and administrative services. The loss of such benefits
could have a material adverse effect on our business.

      See Item 3D, "Risk Factors -- If Grupo TMM's financial restructuring is
not consummated, Grupo TMM may be subject to an involuntary Mexican or U.S.
reorganization related proceeding and, as a result, TFM may lose benefits
derived from Grupo TMM."

      THE KANSAS CITY SOUTHERN RAILWAY COMPANY

      KCSR, the seventh largest U.S. railroad based on 2000 revenues, is
wholly-owned by KCS. Together with its affiliated railroads (excluding the Texas
Mexican Railway Company), KCSR operates a rail network of approximately 3,100
route miles running through 10 states in the U.S. KCSR operates the shortest,
most direct rail route between Kansas City and the Gulf of Mexico, serving the
Texas ports of Beaumont and Port Arthur, and its rail system interconnects with
all other Class I U.S. railroads. KCSR has marketing agreements with Norfolk

                                      -32-
<PAGE>

Southern Railway Co. and I&M Rail Link, LLC and Canadian National, which
position it to gain incremental traffic volume between the southeast and
southwest U.S. and to access major midwestern interchange hubs and originations
of corn and other grain shipments. We believe that we have benefited from KCSR's
experience in running a leading railroad that emphasizes customer service and
efficient operations. In July 2000, KCS completed a spin-off of its former
financial services operations and, as a result, operates exclusively in the
railroad transportation sector.

      TFM and KCS Transportation Company entered into a management services
agreement dated May 9, 1997 pursuant to which KCS Transportation Company agreed
to provide strategic advice and key financial and administrative services to us.
This management services agreement was for an initial term of 12 months
commencing May 1997, renewable for additional one-year periods by agreement of
the parties. Under the terms of the agreement, KCS Transportation Company is to
be reimbursed for its costs and expenses incurred in the performance of such
services. This agreement has not been renewed, but KCSR continues to provide
these services. On April 30, 2002, TFM and KCS, as successor in interest through
a merger with KCS Transportation Company, entered into an amendment to the
management services agreement that provides for automatic renewal of the
agreement and compensates KCS for its services under the agreement.

      THE TEXAS MEXICAN RAILWAY COMPANY

      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 the Texas
Mexican Railway Company. 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 U.S. Surface Transportation Board. 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 U.S. Surface Transportation
Board 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 owns 100% of Mexrail.

      Mexrail also owns the northern portion of the international rail bridge at
Laredo, while TFM operates the southern portion of the bridge at Nuevo Laredo.
The Texas Mexican Railway Company directly links KCSR and TFM's rail lines.

      The Texas Mexican Railway Company operates a 521-mile railway between
Laredo, Houston and Beaumont, Texas. The section between Laredo and Corpus
Christi is operated using the Texas Mexican Railway Company's own track
(approximately 157 miles), while the section from Corpus Christi to Beaumont,
where it interchanges with The Kansas City Southern Railway Company's system, is
operated through trackage rights that were granted to Mexrail by the U.S.
Surface Transportation Board in 1996. The Texas Mexican Railway Company's
railway also interchanges with our rail lines at Laredo, Texas and with the
Union Pacific Railroad and BNSF at Corpus Christi.

      The Texas Mexican Railway Company implemented a significant improvement
program to enable it to handle the expected increase in cross border trade from
NAFTA and its affiliations with KCSR and TFM. Since 2000, trains on the main
line of the Texas Mexican Railway Company's track have operated at speeds of 30
mph or greater and the right-of-way has been cleared for 21-foot doublestack
containers. In 2001, the Texas Mexican Railway Company also acquired the
out-of-service 84.5-mile Rosenberg-Victoria line and right of way from the Union
Pacific Railroad. This acquisition, over time, is expected to reduce 70
operating miles between Laredo and Houston, and Beaumont, Texas. In addition,
the Serrano rail yard in Laredo, Texas serves as a customs exchange and
clearinghouse for inbound rail traffic from the U.S., thereby improving the
efficiency of the movement of freight across the border by relieving current
congestion and delays associated with customs activities conducted on the
crossing bridge. The Serrano rail yard, which encompasses approximately 250
acres and over 8.5 miles of trackage, is the principal railcar and intermodal
facility for the Texas Mexican Railway Company. Since 2001, the Texas Mexican
Railway Company has been investing in connection with the rehabilitation of its
main line, sidings

                                      -33-
<PAGE>

and yards in Corpus Christi, Texas due to the growth in traffic on such line and
in order to provide better service to its customers. The Texas Mexican Railway
Company is expected to invest $50 million in connection with this
rehabilitation.

      We have entered into through-rate agreements with U.S. railroads providing
for a single quoted rate for rail transport to and from Mexico. We plan on
continuing to work with the Texas Mexican Railway Company to further improve
transit times, railcar capacity at Laredo, and overall service to convert grain
traffic consisting of imports from south Texas into Mexico currently transported
mainly by truck.

INSURANCE

      Our business is subject to a number of risks, including:

      -     mechanical failure;

      -     collision;

      -     property loss;

      -     cargo loss or damage; and

      -     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
2004. 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.

      Despite the catastrophic events of September 11, 2001 in the U.S. and
their subsequent effect on increasing insurance rates in local and foreign
insurance markets, we have not experienced a significant increase in our
liability insurance premiums due in part to our improved safety record and
overall performance.

SEASONALITY

      The majority of our customers are industrial in nature, including car
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 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, a government-owned entity exclusively
responsible for the distribution

                                      -34-
<PAGE>

and sale of diesel fuel in Mexico. We are party to a fuel supply contract with
PEMEX of indefinite duration. Either party may terminate the contract upon 30
days' written notice to the other at any time. We experienced decreases of 11.2%
in 2002 and 8.7% in 2001 in our average price of fuel per gallon. In 2003, our
average price of fuel per gallon increased by 24.2% from 2002. 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 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 the Texas Mexican Railway Company, KCSR, the Union Pacific
Railroad, BNSF and other major U.S. and Canadian rail carriers. We have strong
relationships and transportation arrangements with Grupo TMM, which uses our
rail lines to arrange land transportation of products imported from abroad and
destined for markets in Mexico or exported to international markets. This allows
us to link markets in Mexico with points in Grupo TMM's transportation and
logistics network. We have also established arrangements with railroads
throughout the U.S. that are expected to increase intermodal business on routes
between intermodal facilities in the U.S. and Mexico. By offering 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 and origin, we expect
to attract new business in both the U.S. and Mexico.

      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 several sales and customer service representatives throughout the
U.S. to generate through traffic from U.S. railroads and monitor interline
activity.

      Since we commenced operations, we have also been actively seeking to
obtain new customer contracts with the expectation of entering into long-term
contracts with several existing customers. Although written customer contracts
are not customary in the Mexican railroad industry, we have succeeded in
negotiating written contracts with a number of our major customers.

      We deal directly with most of our customers in collecting payment for
freight service and generally receive payment prior to, or within 30 days
following, delivery of service. For outbound prepaid freight and inbound freight
payable upon delivery, we collect full payment from the dispatching party,
retain the portion allocable to transportation on our rail lines and, if
applicable, remit the remainder to other railroad operators on a monthly basis.
These collection procedures also apply to freight imported from and exported to
the U.S. 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 now denominated in Dollars. Approximately 59.7% of our total revenues in
2003 were denominated in Dollars.

PATENTS, LICENSES, INDUSTRIAL, COMMERCIAL OR FINANCIAL CONTRACTS

SICOTRA

      We have a license to use SICOTRA, a Union Pacific Technologies system,
among other purposes, to report car movements in train and yard operations and
to process 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.

      Our improvements to SICOTRA allow us to:

      -     facilitate our communications with major U.S. railroads using the
            SICOTRA system;

                                      -35-
<PAGE>

      -     achieve better, more efficient movements of trains and loaded and
            empty cars in locations along our rail lines, improve locomotive
            utilization, equipment and infrastructure utilization levels, and
            the recording and maintenance of accurate and timely revenue
            information, thereby minimizing labor costs, fuel consumption and
            other expenses; and

      -     participate in the North American rail industry's interline services
            management system, providing coordinated customer service and
            scheduled links among railroads.

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 2,800 kilometers of track, or approximately 65.0% 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 1,425 track kilometers, or approximately 35.0% 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 rail cars, access online documentation (including account
statements) and use predetermined templates to expedite the process and ensure
consistency and quality of information.

      ONLINE CUSTOMER SERVICE

      In the customer service area, we have converted our Internet home page
(http://www.tfm.com.mx) into a comprehensive tool permitting customers to track
the delivery of their shipments and obtain a wide range of information regarding
TFM's services. Besides providing information about TFM's 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

                                      -36-
<PAGE>

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 shipment and availability of 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 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:

      -     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. For example, one train with a two- or three-person crew can
            transport the same freight volume that would require 242 truck
            drivers.

      -     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 recently 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 Juarez, 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 Railroad 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.

      On February 22, 2002, Ferromex and Ferrosur announced that they had agreed
to the acquisition of Ferrosur by Ferromex. TFM filed a notice with the Mexican
Antitrust Commission objecting to the proposed acquisition on the grounds that
it would limit competition. The acquisition was reviewed by the Mexican
Antitrust Commission and, on May 16, 2002, the Mexican Antitrust Commission
announced that it notified Ferromex that it has denied authorization to
consummate the acquisition on antitrust grounds. Ferromex subsequently filed an
appeal for review of the order and, on September 18, 2002, the Mexican Antitrust
Commission confirmed its prior ruling denying authorization to consummate the
acquisition. On October 31, 2002, Ferromex requested the Federal Courts in
Mexico to review the decision of the Mexican Antitrust Commission. We also
requested a Federal Court in Mexico to review our complaint against the
acquisition, requesting to be recognized as a party to the proceedings of the
Mexican Antitrust Commission, and obtained a favorable ruling (amparo). Ferromex
and Ferrosur subsequently withdrew their petition before the Mexican Antitrust
Commission, which terminated the acquisition request in October 2003.

      Under our concession, we are required to grant trackage rights to
Ferromex, Ferrosur, two short line railroads and the Mexico City Terminal
Railroad. These rights will give Ferromex more direct access to the Queretaro
and Mexico City markets. In turn, the other railroads are required to grant
rights to TFM which will allow us to directly access the Guadalajara market,
Mexico's third largest industrial and commercial center.

                                      -37-
<PAGE>

      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 determine 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. In
addition, the concession provides that under certain circumstances the Ministry
of Transportation may require us to grant track usage rights commencing in 2017
if the Ministry of Transportation determines that there is no effective
competition.

      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 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 3D, "Risk Factors -- Significant
competition from trucks and other railroads, as well as limited competition from
the shipping industry, could adversely affect our future financial performance."

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

      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 TFM, 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. 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.

                                      -38-
<PAGE>

      The Ministry of Transportation is principally responsible for regulating
railroad services in Mexico, including railroad services on our rail lines. 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.

      In addition, under the concession and the Mexican railroad services law
and regulations, 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
tariffs for rail freight services.

      See Item 3D, "Risk Factors -- The Mexican government may revoke or
restrict our ability to exploit our concession under a number of circumstances"
and Item 3D, "Risk Factors -- 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 and state 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 Secretaria
del Medio Ambiente y Recursos Naturales (Ministry of Environmental Protection
and Natural Resources). The Procuraduria Federal de Proteccion al Ambiente
(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.

      We acquired 100.0% of the outstanding shares of Mexrail in March 2002 and
sold a 51.0% equity interest in Mexrail to KCS in May 2003 pursuant to a stock
purchase agreement dated April 15, 2003. In September 2003, we reacquired the
51.0% equity interest previously transferred to KCS. As a result of our
ownership of Mexrail, we may also incur other environmental liabilities with
respect to U.S. environmental laws. CERCLA and Superfund laws impose liability
for the cost of remedial or removal actions, natural resources damages and
related costs at certain sites identified as posing a threat to the environment
or public health. CERCLA imposes strict liability on the owners and operators of
facilities in which hazardous waste and other hazardous substances are deposited
or from which they are released or are likely to be released into the
environment. Liability may be imposed, without regard to fault or the legality
of the activity, on certain classes of persons, including the current and
certain prior owners or operators of a site and persons that arranged for the
disposal or treatment of hazardous substances. Liability is imposed on a joint
and several basis. In addition, other potentially responsible parties, adjacent
landowners or other third parties may initiate cost recovery actions or toxic
tort litigation against sites subject to CERCLA or similar state laws.

      Noncompliance with applicable legal provisions may result in the
imposition of considerable fines, temporary or permanent shutdown of operations
or other injunctive relief, or criminal prosecution. We believe that all
facilities that we operate are in substantial compliance with applicable
environmental laws, regulations and

                                      -39-
<PAGE>

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.

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. Grupo TFM is owned 38.4% by TMM
Multimodal, a subsidiary of Grupo TMM, 36.9% by KCS, which owns KCSR, and 24% by
TFM following its acquisition of the Mexican government's 24.6% equity interest
on July 29, 2002. Grupo TMM, through its wholly-owned subsidiary, TMM Holdings,
owns a 100.0% voting interest and an approximate 96.6% economic interest in TMM
Multimodal.

      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. See Item 3D, "Risk Factors -- Our
strategic partners, Grupo TMM and KCS, are involved in a dispute and we are
involved in other legal proceedings with KCS" and Item 8A, "Financial
Information -- Consolidated Statements and Other Financial Information -- Legal
Proceedings -- Dispute between Grupo TMM and KCS."

EQUITY INTEREST OF THE MEXICAN GOVERNMENT IN GRUPO TFM AND TFM; NEGOTIATION OF
CERTAIN RELATED MATTERS WITH THE GOVERNMENT

      EQUITY INTEREST OF THE GOVERNMENT IN GRUPO TFM AND TFM

      The Mexican government's equity interest in Grupo TFM, which we acquired
on July 29, 2002, consisted of 2,478,470 Series L-1 Shares of Grupo TFM, which
had restricted voting rights and represented 24.6% of Grupo TFM's total
shareholders' equity. The Mexican government paid a total purchase price of
$198.8 million for its interest in Grupo TFM. A call option was granted by the
Mexican government to the original shareholders of Grupo TFM pursuant to the
call option agreement. The call option was originally held by the principal
shareholders. Under the call option, each principal shareholder had an option to
acquire, directly or indirectly, a pro rata portion of the Mexican government's
interest, based on that shareholder's equity ownership of Grupo TFM, at a
purchase price per share equal to the per share price initially paid by the
Mexican government, plus interest at the rate payable on one- year U.S. Treasury
obligations. The call option could be exercised at any time on or before July
31, 2002. If the call option (or any portion thereof) had not been exercised by
that date, it would automatically expire, although any unexercised portion of
the call option with respect to any of the principal shareholders may have been
exercised pro rata by the other principal shareholders within a period of 15
days following the call option expiration date.

      The principal shareholders exercised the call option and appointed TFM as
purchaser of all of the call option shares pursuant to an exercise notice given
to the Mexican government on May 29, 2002. The acquisition was consummated on
July 29, 2002, and the purchase price was $256.1 million. Prior to the
acquisition by TFM, the Mexican government's shares were converted to Series L-2
Shares with more limited voting rights in accordance with the provisions of
Grupo TFM's by-laws. As a result of the acquisition of the call option shares,
we have achieved certain financial benefits and have reduced the Mexican
government's ownership and involvement in our business. We financed the purchase
price for the call option shares with (1) net proceeds of $152.9 million from
the sale of the 2012 senior notes and (2) $85.2 million (based on the applicable
exchange rate as of July 29, 2002) payable to us by the Mexican government as a
result of our recent transfer of a redundant portion of our track to the Mexican
government, together with $18.0 million in cash from our operations.

      The Mexican government retained a 20% interest in TFM in connection with
the privatization of TFM in 1997, and pursuant to the Put Agreements, 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

                                      -40-
<PAGE>

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. The price of the Mexican government's
interest, as indexed for Mexican inflation, was approximately 1,570.3 million
UDIs (representing Ps. 5,264 million, or approximately $469.4 million, as of
December 31, 2003). The estimated fair market value of the Mexican government's
interest as of December 31, 2003 was $475.6 million (the fair market value
represents the price that a third party would be willing to pay).

      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 Put Agreements 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 3D, "Risk Factors -- The Mexican government has the right,
subject to certain conditions, to require Grupo TFM to purchase the Mexican
government's 20% interest in TFM" and Item 8A, "Financial Information --
Consolidated Statements and Other Financial Information -- Legal Proceedings --
Mexican Government's Put on its Equity Interest in TFM."

      NEGOTIATION OF CERTAIN RELATED MATTERS WITH THE MEXICAN GOVERNMENT

      Following our privatization in 1997, we and our shareholders have
negotiated with the Mexican government the resolution of certain matters related
to the granting of the concession and our acquisition of related railroad
assets.

      In connection with these negotiations, on February 9, 2001, the Mexican
government, through the Ministry of Transportation, issued an official statement
pursuant to which we and the Mexican government agreed to the transfer of the
redundant La Griega-Mariscala track back to the Mexican government. On February
12, 2001, the Mexican government amended our concession title to reflect the
reversion of the La Griega-Mariscala line to the Mexican government. The
consideration for the transfer of the track was approximately Ps. 653.6 million
plus applicable value added tax, or approximately Ps. 751.6 million. The Peso
amount was reflected on our books in dollars as a receivable due from the
Mexican government using the interbank exchange rate as of the last day of each
calendar month. The Mexican government agreed to pay the consideration for the
La Griega-Mariscala line to us upon the earlier to occur of (1) the acquisition
of the Mexican government's 20.0% interest in TFM or its 24.6% interest in Grupo
TFM by TFM, Grupo TFM or its shareholders or affiliates or (2) October 31, 2003.
The Mexican government paid us this consideration upon consummation of our
acquisition of its interest in Grupo TFM on July 29, 2002. The amount of the
consideration was adjusted based on an appraisal of the La Griega-Mariscala
track on July 29, 2002, the date of payment, and was translated into dollars
using the prevailing Peso-Dollar exchange rate on that date. By acquiring the
call option shares through the exercise of the call option, we received payment
of this consideration significantly before October 31, 2003. Using the interbank
exchange rate on July 29, 2002, the amount paid to us by the Mexican government
was $85.2 million.

      The La Griega-Mariscala track is a redundant 32-kilometer stretch of track
which is part of our dual track running between Mexico City and the city of
Queretaro. The Mexican government subsequently granted the La Griega-Mariscala
track to Ferromex to fulfill its obligation to provide Ferromex with a track
along this route to facilitate transport by Ferromex through Queretaro.

      In connection with the transfer of the La Griega-Mariscala track, our
concession was also amended to relieve us from responsibility for the
maintenance of the electrified catenary over the portion of our dual line
between Huehuetoca in the state of Mexico and the city of Queretaro and to
authorize our dismantling of the catenary over that portion of the line, which
we completed in 1999. In addition, the amendment requires us to complete certain
railway improvements which we believe will not involve material expenditures.

      The stock purchase agreement pursuant to which Grupo TFM acquired its TFM
shares from the Mexican government provided for a purchase price adjustment in
the event that Grupo TFM were to suffer any loss greater than Ps. 30.0 million
(approximately $3.8 million at the then-prevailing exchange rate) as a result of
any undisclosed liability, or from the non-delivery of railroad assets purchased
by TFM from the Mexican government, provided that any claim for an adjustment
must be made within 180 days after commencement of TFM's operations. After
conducting a purchase audit of the rolling stock that it received, TFM submitted
to the Mexican government a claim for reimbursement in respect of undelivered
rail cars and other equipment. This claim was resolved in TFM's favor,

                                      -41-
<PAGE>

and TFM received from the Mexican government approximately $9.0 million
(including $2.0 million of interest) in 1998 and an additional amount of
approximately $6.0 million (including $2.2 million of interest) in October 1999,
amounting to an aggregate settlement payment of $15.0 million. For accounting
purposes, the adjustments resulting from the non-delivery of assets reduced the
recorded value of the fixed assets acquired in connection with Grupo TFM's
acquisition of TFM, and the interest portion was credited to income.

D.    PROPERTY, PLANTS AND EQUIPMENT

DESCRIPTION OF PROPERTY

      Our principal executive offices, which we lease, are located at Av.
Periferico Sur No. 4829, 4to Piso, Col. Parques del Pedregal, Mexico, D.F.
14010, Mexico and our headquarters are located at Av. Manuel L. Barragan 4850
Norte, Colonia Hidalgo, C.P. 64420, Monterrey, Nuevo Leon. We also own several
freight yards located along our rail lines.

      For a discussion of our right to use property under our concession see
Item 4A, "History and Development of the Company -- Passenger Transport." and
Item 4B, "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 3D, "Risk
Factors -- The Mexican government may revoke or restrict our ability to exploit
our concession under a number of circumstances." For a discussion of
environmental issues that may affect our utilization of our property, see Item
4B, "Business Overview -- Environmental Regulation."

TRACK

      As of December 31, 2003, our rail lines consisted of the following track:

<TABLE>
<CAPTION>
                                                                  UNDER         TRACK USAGE
                                                                CONCESSION         RIGHTS           TOTAL
                                                                ----------      -----------        --------
                                                                                  (IN KILOMETERS)
<S>                                                             <C>             <C>                <C>
Main track...................................................        4,245              950           5,195
Sidings under centralized traffic control....................          216                -             216
Spurs, yard tracks and other sidings.........................          251                -             251
                                                                     -----              ---           -----
     Total...................................................        4,712              950           5,662
                                                                     =====              ===           =====
</TABLE>

      All of our track is standard gauge (56.5 inches) and is generally in good
condition. Of our 4,245 kilometers of main track, 100.0% has 100 to 136-lbs.
rail and approximately 76.0% 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 TFM's core routes
varies between 50 kph and 80 kph. Since we commenced operations, we have
extended sidings on our tracks 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, 2003:

<TABLE>
<CAPTION>
                                                             MAIN LINE - MEXICO CITY
                                                                 TO NUEVO LAREDO         ALL LINES
                                                             -----------------------     ---------
                                                                         (IN KILOMETERS)
<S>                                                          <C>                         <C>
Continuously welded rail..................................           1,499                 3,297
Jointed rail..............................................               0                   948
                                                                     -----                 -----
     Total................................................           1,499                 4,245
                                                                     =====                 =====
Concrete ties installed...................................           1,445                 2,574
Wood ties installed.......................................              54                 1,671
                                                                     -----                 -----
     Total................................................           1,499                 4,245
                                                                     =====                 =====
</TABLE>

                                      -42-
<PAGE>

      The portion of the Mexico City -- Nuevo Laredo core route between Mexico
City and Queretaro (a distance of approximately 230 kilometers) has double
track, which accommodates greater traffic volume and maximum allowable speeds of
approximately 80 kph. Our rail lines support a weight of 130 tons per rail car.

      We run freight trains at average speeds of approximately 50 to 70 kph
along our core routes between Mexico City and the U.S. border. The majority of
the main line track of our rail lines accommodates these speeds or greater
speeds. Approximately 85.0% of our main line track handles speeds of up to 60
kph.

      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 with a total length
of 25,252 meters, of which 1,111 are permanent and 115 are temporary; 301 are
steel structures, 810 are concrete structures and 115 have inverted floor
systems, timber structures or are mixed.

      There are 98 tunnels on our rail lines, having a total length of 26,882
meters, which are on our main lines and allow for the passage of double-stack
trains. In addition, there are 7,273 culverts along the railway.

EQUIPMENT

      We own an estimated 23.0% of the cars running over our rail lines and the
remaining 77.0% are privately-owned, belonging to Mexican and foreign, mainly
U.S., companies or railroads. Our fleet consists of 4743 locomotives, of which
467 are diesel, of which Electro Motive Division ("EMD"), a subsidiary of
General Motors, built 243 and GE built 224. We have entered into long-term
leases for 150 additional locomotives, all of which we have received. 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
48.2% more horsepower per unit, compared with our 3000 horsepower road engines,
and 79.5% more horsepower compared to our previous total horsepower base,
allowing us to haul longer trains with fewer locomotives. We have also 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 currently
use 150 of our leased locomotives. We lease some of the locomotives in our fleet
to the Texas Mexican Railway Company. The average age of the locomotives in our
fleet is approximately 13 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 12 years.

      Of the 473 locomotives in our fleet, approximately 258 are assigned to the
hauling of freight, 50 are used for yard work, 60 locomotives are subleased to
third parties (55 to the Texas Mexican Railway Company and 5 to KCSR), 2 of
which are running on the Union Pacific line under a horsepower-per-hour
interchange agreement, 6 locomotives are electric (and out of service) and 64 of
our yard and road engines are currently in storage. We use the remaining 33
units for miscellaneous purposes such as maintenance of way trains and industry
switching.

                                      -43-
<PAGE>

      The following table describes our locomotive fleet and maintenance
contractors, as more fully described under " - Improvements, Maintenance and
Repair," as of December 31, 2003.

<TABLE>
<CAPTION>
                                  NUMBER      NUMBER OF                      YEAR
      MAKE         TYPE          OF UNITS       AXLES      HORSEPOWER        BUILT        MAINTAINED BY
      ----         ----          --------     ---------    ----------        -----        -------------
<S>            <C>               <C>          <C>          <C>             <C>            <C>
OWNED
      EMD      SW1504                15           4          1,500           1973           MPI/GETS
      EMD      MP15AC                11           4          1,500           1983           MPI/GETS
      EMD      GP38-2                50           4          2,000          1975-83         MPI/GETS
      EMD      SD45                   1           6          3,600           1978           MPI/GETS
      EMD      SD40                  52           6          3,000          1968-72         MPI/GETS
      EMD      SD40-2                39           6          3,000          1973-88         MPI/GETS
       GE      B23-7                  7           4          2,250           1981            Alstom
       GE      C30-7                 38           6          3,000          1982-89          Alstom
       GE      SUPER 7              104           6          3,000          1990-94          Alstom
       GE      E-60 (Elect.)          6           6          6,000           1984            Alstom
                                    ---
Total owned...................      323
                                    ===
LONG-TERM LEASE
       GE      AC4400CW              75           6          4,400         1998-2000          GETS
       EMD     SD70MAC               75           6          4,000         1999-2000          GMM
                                    ---
Total under long-term lease...      150
                                    ===
</TABLE>

      Rail cars owned and leased by us as of December 31, 2003 consisted of the
following:

<TABLE>
<CAPTION>
                                                                            OWNED      LEASED
                                                                           ------      ------
<S>                                                                        <C>         <C>
Box cars................................................................    1,194         663
Gondolas................................................................    1,831       1,998
Covered hoppers.........................................................      573       2,674
Flat cars...............................................................      559         308
Bi-level carriers.......................................................        0       1,287
Spine cars..............................................................        0          48
Tank cars...............................................................       71         705
Cabooses................................................................       51           0
Open top hoppers........................................................       10
Office cars.............................................................        4           0
                                                                            -----       -----
     Total..............................................................    4,293       7,683
                                                                            =====       =====
</TABLE>

      To supplement our fleet of owned railcars, we have implemented an
operating lease program that allows us to effectively manage our car capacity 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 tri-level and bi-level carriers. We also lease
cars, large and small trucks and other equipment for a variety of functions. In
addition, we are refurbishing some of our cars. 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. See
Item 4, "Information on the Company -- Business Overview -- Environmental
Regulation."

      SALES AND MARKETING

      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.

                                      -44-
<PAGE>

IMPROVEMENTS, MAINTENANCE AND REPAIR

      We have entered into locomotive maintenance agreements with Alstom
Transporte, S.A. de C.V. ("Alstom"), GE Transportation Systems Mexico, S.A. de
C.V., GETS Locomotive Services, S.A de C.V., MPI Noreste, S.A. de C.V. ("MPI")
and General Motors de Mexico S. de R.L. de C.V. ("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 those regulations
as required by 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
rebuilt locomotives, and every 1,000,000 miles for new 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 provides us
with significant advantages by relieving us of locomotive maintenance
requirements while allowing us to focus 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 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 have claimed that this acquisition
constituted a transfer of the MPI agreement without our consent and, as a
result, we anticipate a favorable renegotiation of the terms of 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 may 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 TFM personnel to perform such
maintenance.

      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
will 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-Lazaro Cardenas line, which comprises approximately
350 miles of track. In 2002 and 2003, our maintenance and rehabilitation
expenses under this contract amounted to $35.6 million and $3.4 million,
respectively. 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, 2003, we have paid $43.4 million
under this agreement.

      For a discussion of our capital improvements program, see Item 3D, "Risk
Factors -- Our business is very capital intensive and requires us to make
significant ongoing capital expenditures; failure to make such capital
expenditures could result in the revocation of our concession", Item 4B,
"Business Overview -- Business Strategy and Development Since Commencement of
Operations" and Item 5B, "Liquidity and Capital Resources -- Capital
Expenditures."

                                      -45-
<PAGE>

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
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 3D, "Risk
Factors." See "Forward-Looking Statements" for cautionary statements concerning
forward-looking statements.

CORPORATE OVERVIEW

      TFM was established by the Mexican government in November 1996 in
connection with the privatization of the Mexican rail system, which had been
operated by Ferrocarriles Nacionales de Mexico. In December 1996, pursuant to a
stock purchase agreement, 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 was completed on June 23, 1997.

      TFM's rail lines are comprised of approximately 2,638 miles of track which
form a strategically important rail link within Mexico and to the NAFTA
corridor. TFM's rail lines directly link Mexico City and Monterrey (as well as
Guadalajara through trackage rights) with the ports of Lazaro Cardenas, Veracruz
and Tampico and the U.S. border crossings at Nuevo Laredo and Matamoros.

EXECUTIVE SUMMARY

      2003 ANALYSIS

      Our revenues for the year ended December 31, 2003 were $698.5 million
(including $57.1 million in revenues from the Texas Mexican Railway Company),
which represents a decrease of $13.6 million or 1.9% compared to the year ended
December 31, 2002. Our revenues in 2003 were negatively impacted by a decrease
in revenues from the automotive industry of $29.4 million or 19.1% in 2003 from
2002, which was partially offset by an increase in revenues from the conversion
of traffic from truck to rail transport, an increase in the Texas Mexican
Railway Company's revenues, and an increase in revenues from the
agro-industrial, chemical and petrochemical products, and cement and mineral
product categories.

      Our income on transportation for the year ended December 31, 2003 was
$133.2 million, which represents a decrease of $21.3 million or 16.0% compared
to the year ended December 31, 2002. Our costs and expenses for the year ended
December 31, 2003 were $565.4 million, which represents an increase of $7.7
million or 1.4% compared to the year ended December 31, 2002. Our costs and
expenses include fuel expenses, which increased $13.8 million or 27.6% in 2003
over 2002, and casualties and insurance expenses, which increased $0.6 million
or 4.1% in 2003 over 2002. Nevertheless, our costs and expenses for the year
ended December 31, 2003 reflected the results of some of our cost control
measures, which contributed to (i) a decrease in salaries, wages and employee
benefits expenses of $2.6 million or 2.1% in 2003 from 2002, (ii) a decrease in
costs of material and supplies of $0.6 million or 6.9% in 2003 from 2002 and
(iii) a decrease in costs of purchased services of $8.2 million or 5.0% in 2003
from 2002, which was attributable to reduced expenses related to maintenance of
locomotives and cars.

      2004 OUTLOOK

      Revenue Growth. We expect to achieve revenue growth of 6.0% to 9.0% for
2004. We project revenue increases in 2004 in our product categories, except for
revenues from the automotive and intermodal industries, which are expected to
decrease slightly. We expect the largest percentage revenue increases to be from
the transportation of (i) chemical and petrochemical products and (ii)
manufactured products, industrial products and metals and minerals. We also
expect modest percentage revenue increases from the transportation of
agro-industrial products. If Mexico and the U.S. recover from the economic
recession during 2004, we expect that such recovery will have a positive impact
on our operating trends and results.

                                      -46-
<PAGE>

      Fuel prices. During 2004, we expect that fuel prices will remain volatile.
We anticipate that fuel prices will continue to be driven by high levels of
consumption and relatively tight levels of inventories. This situation is being
increasingly complicated by the build-up of strategic reserves within the oil
consuming countries. In order to mitigate this unstable situation with respect
to oil prices which results in higher diesel fuel prices, we may hedge our
position through purchase commitments and fuel swaps, both of which may reduce
the risk of the adverse impact of volatile fuel prices.

      Capital expenditures. During 2004, we expect to make capital expenditures
of approximately $55 million, consisting mainly of (i) improvements to our
tracks, yards, and sidings, (ii) the construction of new facilities for our
customers' needs, and (iii) upgrades of our locomotives and rolling stocks. The
Texas Mexican Railway Company has been investing in a major rehabilitation of
its main line, sidings and yards in Corpus Christi, Texas. In connection with
this rehabilitation, the Texas Mexican Railway Company is expected to make
capital expenditures in the amount of $50 million, $36 million of which is
estimated to be made in 2004. We have been seeking financing for this major
rehabilitation by applying for funds from the Department of Transportation,
Federal Railroad Administration under its Railroad Rehabilitation and
Improvement Financing Program.

ACCOUNTING CONSIDERATIONS

      Our financial statements are prepared in accordance with IFRS, which
differ 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. Individual 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 12 of our financial statements appearing elsewhere in this report.

      Each of these differences affects both net income and stockholders'
equity. Net income under U.S. GAAP of TFM was $91.9 million, $136.6 million and
$34.2 million for the years ended December 31, 2001, 2002 and 2003,
respectively. Net income under U.S. GAAP for Grupo TFM was $73.6 million, $110.2
million and $27.3 million for the years ended December 31, 2001, 2002 and 2003,
respectively.

      Effective January 1, 1999, Mexico ceased to be classified as "highly
inflationary" for purposes of applying Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation" ("FAS 52"). In connection with
this change, we performed an analysis under the guidance of FAS 52 and IAS No.
29, "Financial Reporting in Hyper Inflationary Economies" ("IAS 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 for periods subsequent to
December 31, 1998. 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 U.S.
Securities and Exchange Commission ("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 for IFRS, 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 depend. These key
accounting policies most often involve complex matters or are 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 transactions into U.S. Dollars, use of
financial instruments 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 report.

      Revenue Recognition. Railroad revenues for the relevant accounting period
are recognized as income based on the shipments originated and 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. In addition, with respect to interline revenues
and haulage and trackage rights, we and the other Mexican railroads have to
agree and reconcile usage amounts on a periodic basis. We have in the past had
and continue to have disagreements with the other railroads with respect to such
amounts and cannot assure you that this will not continue in the future.

                                      -47-
<PAGE>
      Financial Statement Transactions 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 each fiscal period. Our most
subjective key functional currency indicators are cash flows and sales 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.

      Financial Instruments. Fuel expenses are a significant component of our
operating expenses. Fuel expenses are affected by various factors including: (i)
traffic levels, (ii) efficiency of operations and equipment, and (iii) fuel
market conditions. We will occasionally enter into transactions to hedge against
fluctuations in the price of diesel fuel purchases to protect our operating
results against adverse fluctuations in fuel prices.

      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 our commencement of 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. However, 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.

NEW ACCOUNTING PRONOUNCEMENTS

      IFRS

      The IASB on December 18, 2003 revised IAS 1, 2, 8, 10, 16, 17, 21, 24, 27,
28, 31, 33 and 40 and gave notice of the withdrawal of IAS 15. The revised
standards mark the near-completion of the IASB's improvement project. The
project addressed concerns, questions and criticism raised by securities
regulators and other interested parties about the existing set of accounting
standards issued by the IASB. The project resulted in: (i) removal of some
options (i.e., allowed alternatives), (ii) better reporting through convergence
and (iii) new guidance and disclosures. Improved versions of two further
standards (IAS 32 and IAS 39) were also revised by the IASB as part of its
improvements project and issued on December 17, 2003. The effective date for the
amended standards is for financial periods beginning on or after January 1,
2005. Earlier adoption is permitted.

      In February 2004, the IASB published IFRS 2, "Share-based Payment", which
replaces IAS 19 disclosure requirements for equity compensation benefits. IFRS 2
requires an entity to recognize share-based payment transactions in its
financial statements, including transactions with employees or other parties to
be settled in cash, other assets or equity instruments of the entity. The
standard sets out measurement principles and specific requirements for three
types of share-based payment transactions: equity-settled share-based payment
transactions; cash-settled share-based payment transactions; and with settlement
alternatives. The effective date for applying IFRS 2 is January 1, 2005.

      In March 2004, the IASB issued IFRS 3, "Business Combinations", which
supersedes IAS 22 for all business combinations with an agreement date of March
31, 2004 and after. This IFRS also replaces the following interpretations from
the Standing Interpretations Committee: (i) SIC-9 Business Combination --
Classification either as Acquisition or Uniting of Interests; (ii) SIC-22
Business Combinations -- Subsequent Adjustment of Fair Values and Goodwill
Initially Reported; (iii) SIC-28 Business Combinations -- Date of Exchange and
Fair Value of Equity Instruments. The objective of this IFRS is to specify the
financial reporting by an entity when it undertakes a business combination. In
particular, it specifies that all business combinations should be accounted for
by applying the purchase method. Therefore, the acquirer recognizes the
acquiree's identifiable assets, liabilities and contingent liabilities at their
fair values at the acquisition date, and also recognizes goodwill, which is
subsequently tested for

                                      -48-

<PAGE>

impairment rather than amortized. This IFRS does not apply to (i) business
combinations in which separate entities or businesses are brought together to
form a joint venture, (ii) business combinations involving entities or
businesses under common control, (iii) business combinations involving two or
more mutual entities, or (iv) business combinations in which separate entities
or businesses are brought together to form a reporting entity by contract alone
without obtaining an ownership interest (for example, combinations in which
separate entities are brought together by contract alone to form a dual listed
corporation).

      In March 2004, the IASB issued IFRS 4, "Insurance Contracts", which
provides for the first time, guidance on accounting for insurance contracts, and
marks the first step in the IASB's project to achieve the convergence of widely
varying insurance industry accounting practices around the world. The objective
of this IFRS is to specify the financial reporting for insurance contracts by
any entity that issues such contracts (described in this IFRS as an issuer)
until the IASB completes the second phase of its project on insurance contracts.
In particular, this IFRS requires: (i) limited improvements to accounting by
issuers for insurance contracts; and (ii) disclosure that identifies and
explains the amounts in an issuer's financial statements arising from insurance
contracts and helps users of those financial statements understand the amount,
timing and uncertainty of future cash flows from insurance contracts. An entity
shall apply this IFRS for annual periods beginning on or after January 1, 2005.
Earlier application is encouraged. If an entity applies this new IFRS for an
earlier period, it should disclose that fact.

      In March 2004, the IASB issued IFRS 5, "Non-current Assets Held for Sale
and Discontinued Operations." This IFRS sets out requirements for the
classification, measurement and presentation of non-current assets held for sale
and replaces IAS 35, "Discontinued Operations." The objective of this IFRS is to
specify the accounting for assets held for sale, and the presentation and
disclosure of discontinued operations. In particular, this IFRS requires: (i)
assets that meet criteria to be classified as held for sale to be measured at
the lower of the carrying amount and the fair value less costs to sell, and
depreciation on such assets to cease; and (ii) assets that meet certain criteria
to be classified as held for sale to be presented separately on the face of the
balance sheet and the results of discontinued operations to be presented
separately in the income statement. An entity shall apply this IFRS for annual
periods beginning on or after January 1, 2005. Earlier application is
encouraged. If an entity applies this IFRS for an earlier period, it should
disclose that fact.

      U.S. GAAP

      In January 2003, FIN 46 "Consolidation of Variable Interest Entities"
("FIN 46"), was issued and clarifies the application of Accounting Research
Bulletin No. 51 "Consolidated Financial Statements", to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. These types of entities are referred to as VIEs. For all Special
Purpose Entities ("SPEs") created prior to February 1, 2003, public companies
must apply either the provisions of FIN 46 or adopt the provisions of FIN 46-R
early at the end of the first interim or annual reporting period ending after
December 15, 2003 (i.e, as of December 31, 2003 for an entity with a calendar
year-end). If a public company applies FIN 46 for such period, the provisions of
FIN 46-R must be applied as of the end of the first interim or annual reporting
period ending after March 15, 2004. For all non-SPEs created prior to February
1, 2003, public companies will be required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004. For all
entities (regardless or whether the entity is an SPE) that were created
subsequent to January 31, 2003, public companies were already required to apply
the provisions of FIN 46, and should continue doing so unless they elect to
adopt the provisions of FIN 46-R early as of the first interim or annual
reporting period ending after December 15, 2003. If they do not elect to adopt
FIN 46-R early, public companies would be required to apply FIN 46-R to these
post-January 31, 2003 entities as of the end of the first interim or annual
reporting period ending after March 15, 2004.

      In May 2003, the FASB issued SFAS No. 150 ("SFAS 150"), "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS 150 improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity, and requires
that these instruments be classified as liabilities in statements of financial
position. SFAS 150 is effective prospectively for financial instruments entered
into or modified after May 31, 2003 and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. SFAS 150 shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of SFAS 150
and still existing at the beginning of the interim period of adoption. TFM does
not expect that the adoption of SFAS 150 will have a material effect on our
financial position or results of operations.

                                      -49-

<PAGE>

      We are presently evaluating the impact if any, that the adoption of the
above mentioned statements will have on our consolidated financial statements.

RESULTS OF OPERATIONS

      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 the Texas
Mexican Railway Company's carloads) in 2003 increased by 3.3% compared to 2002,
while the Mexican economy grew by only 1.3%, 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. Carloads
are a standard measure used by TFM to determine the number of loaded cars that
transport cargo on TFM's rail lines in order to determine traffic volume.

      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.

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                             ----------------------------------------------------
                                                      2002                        2003
                                             ----------------------      ------------------------
PRODUCT CATEGORY                             CARLOADS     REVENUES        CARLOADS     REVENUES
----------------                             --------   ------------     ---------   ------------
                                                        (IN MILLIONS)                (IN MILLIONS)
<S>                                          <C>        <C>              <C>         <C>
Manufactured products, industrial ...
   products, metals and minerals ....        227,067      $   195.6        246,619      $   199.7
Automotive products .................        131,926          154.1        120,883          124.7
Agro-industrial products ............        110,956          140.8        122,114          142.9
Chemical and petrochemical ..........
   products .........................         83,406          107.7         88,522          113.2
Intermodal freight ..................        190,694           56.3        190,488           52.4
Other ...............................              0            6.0              0            8.5
                                             -------      ---------        -------      ---------
TFM .................................        744,049      $   660.5        768,626      $   641.4
                                             =======      =========        =======      =========
Texas Mexican Railway Company .......         91,550           51.6        100,814           57.1
                                             -------      ---------        -------      ---------
   Total TFM ........................        835,599      $   712.1        869,440      $   698.5
                                             =======      =========        =======      =========
</TABLE>

      Manufactured products, industrial products, metals and minerals. Revenues
increased by $4.1 million or 2.1% in 2003 compared with 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
Lazaro Cardenas to Monterrey of slabs, billets, bars and wire rod. We also
gained market share from "cabotage" shipping (shipping within Mexico and Mexican
waters). Nevertheless, we experienced a continued slowdown in paper and wood
product imports which were offset by revenues resulting from the conversion of
truck traffic to rail and the recapture of lost customers.

      Agro-industrial products. Revenues increased by $2.1 million or 1.5% in
2003 compared with 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, 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 traffic from the port of Lazaro Cardenas to
Laredo.

      Automotive products. Revenues decreased by $29.4 million or 19.1% in 2003
compared with 2002. During 2003, vehicle production in Mexico decreased 15% due
to reduced demand. This decrease was a result of the continued economic
recession in the U.S. and Mexico. Additionally, we are still experiencing the
adverse effect of the shutdown of the DaimlerChrysler plant in Lago Albert and
the reduction of Ford exports from the Cuautitlan

                                      -50-
<PAGE>

plant in 2002. Through efforts to convert truck traffic to rail, we have
mitigated this reduction in our revenues, but our hauls have decreased because
of volume lost from the closure of these plants.

      Chemical and petrochemical products. Revenues increased by $5.5 million or
5.1% in 2003 compared with 2002. Contributing to the increase in revenues were
increases in petroleum coke traffic for CEMEX, transportation of fuel oil,
diesel, gasoline for PEMEX and imported plastics traffic. Additionally, we
continued the successful conversion from truck to rail transport through the use
of transload facilities.

      Intermodal freight. Revenues decreased by $3.9 million or 6.9% in 2003
compared with 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.

      Texas Mexican Railway Company. The Texas Mexican Railway Company's
revenues increased by $5.5 million or 10.6% in 2003 compared to 2002. The Texas
Mexican Railway Company's total revenues were $57.1 million in 2003. This
increase was mainly the result of an increase in U.S. interchange traffic, as
well as increased traffic from the agro-industrial, industrial and chemical
product segments.

      OPERATING EXPENSES

      Total operating expenses amounted to $565.4 million for the year ended
December 31, 2003, compared to $557.7 million for the year ended December 31,
2002, which represents a decrease of 1.4%. The following table illustrates our
operating expenses for the periods indicated as a percentage of revenues
generated during the corresponding periods.

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                       ---------------------------------------------------------------
                                                      2002                            2003
                                       ------------------------------------    -----------------------
                                                                 % OF                           % OF
                                           AMOUNT               REVENUE          AMOUNT        REVENUE
                                       -------------         -------------     ----------      -------
                                       (IN THOUSANDS)                        (IN THOUSANDS)
<S>                                    <C>                   <C>               <C>             <C>
Salaries, wages and employee .......
   benefits ........................      $124,413              17.5%          $  121,762        17.4%
Purchased services .................       163,835              23.0              155,594        22.3
Fuel ...............................        50,139               7.0               63,972         9.2
Materials and supplies .............         8,455               1.2                7,871         1.1
Car hire -- net ....................        43,070               6.0               42,378         6.1
Rents other than car hire ..........        56,563               7.9               57,580         8.2
Casualties and insurance ...........        14,853               2.1               15,458         2.2
Other costs ........................        14,942               2.1               15,353         2.2
Depreciation and amortization ......        81,401              11.4               85,403        12.2
                                          --------              ----           ----------        ----
  Total operating expenses.........       $557,671              78.3%          $  565,371        80.9%
                                          ========              ====           ==========        ====
</TABLE>

      Salaries, wages and employee benefits. Salary 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 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 cars, 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 cars as a result of cost control measures and to more efficient
operations. This decrease was partially offset by increased costs of maintenance
of our Celaya-Lazaro Cardenas line.

      Fuel. Our fuel expenses increased 27.6% in the year ended December 31,
2003 compared to the year ended December 31, 2002 primarily due to the
volatility of fuel prices during 2003. The average fuel price per gallon

                                      -51-

<PAGE>

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 the
year ended December 31, 2003 were 6.9% lower than for the year ended December
31, 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 the year ended December 31, 2003 from the year ended December 31, 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
leases and railcar and equipment rental expenses. These expenses increased by
$1.0 million or 1.8% in the year ended December 31, 2003 from the year ended
December 31, 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 the year ended
December 31, 2003 from the year ended December 31, 2002 due to higher premium
rates.

      Other costs. Other costs consist primarily of employee expenses such as
the costs of meals, lodging, travel, as well as the concession duty payable to
the Mexican government and the allowance for doubtful accounts. These expenses
increased in the year ended December 31, 2003 mainly due to an increase of $0.3
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 1.2%
of gross revenues thereafter.

      Depreciation and amortization. Depreciation and amortization expenses in
the year ended December 31, 2003 increased by $4.0 million from the year ended
December 31, 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 $7.7 million in the year ended
December 31, 2003 from $154.5 million in the year ended December 31, 2002,
representing a decrease of approximately 5.0%, due to the factors described
above. Our operating ratio increased to 80.9% for the year ended December 31,
2003 from 78.3% for the year ended December 31, 2002.

      OTHER EXPENSES

      Other expense - net. Our other expenses - net increased by $16.0 million
in the year ended December 31, 2003 from the year ended December 31, 2002 due to
a one-time charge incurred in 2003 in connection with the Value Added Tax
lawsuit. This increase was partially offset by the gain resulting from the sale
by TFM to the Mexican government of the redundant La Griega-Mariscala line,
which amounted to $2.4 million.

      Interest expense - net. Interest expense - net for the year ended December
31, 2003 was $111.1 million compared to $96.7 million for the year ended
December 31, 2002. Our interest expense - net increased in 2003 over 2002
because 2003 included a full year of interest expense on our 2012 senior notes
issued on June 13, 2002.

      Exchange gain (loss) - net. We recorded a net foreign exchange loss of
$13.7 million for the year ended December 31, 2003 compared to a net foreign
exchange loss of $17.5 million for the year ended December 31, 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.

      Deferred income tax. Our deferred income tax expense was $34.1 million for
the year ended December 31, 2003 compared to a deferred income tax expense of
$32.0 million for the year ended December 31, 2002. The

                                      -52-

<PAGE>

income tax expense in the year ended December 31, 2003 is a result of the effect
of the depreciation of the Peso against the Dollar in our fixed assets and the
reduction of working capital provisions.

      RESULTS OF OPERATIONS OF GRUPO TFM

      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 the 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
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 3D, "Risk Factors -- Mexican regulatory, political and economic
risks associated with emerging market economies could adversely affect our
financial condition and results of operations." for a discussion regarding the
impact of inflation, foreign currency fluctuations and Mexican governmental
policies on our business.

      TFM'S RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED
      TO THE YEAR ENDED DECEMBER 31, 2001

      REVENUES

      Revenues for the year ended December 31, 2002 totaled $660.5 million
compared to $667.8 million for the year ended December 31, 2001, which
represented a decrease of 1.0%. This minor decrease in 2002 was mainly
attributable to the general slowdown of the U.S. and Mexican economies,
particularly in the automotive and construction industries resulting in a
decrease in imports and exports of finished products. We also experienced a
decrease in agro-industrial revenue due to the reduction of grain imports from
the U.S. and Canada and bad weather conditions affecting crops in Mexico. TFM's
carloads (excluding the Texas Mexican Railway Company's carloads) in 2002
increased by 3.0% compared to 2001.

      The following table sets forth, by product category, our revenues and
traffic volumes by carloads for the years ended December 31, 2001 and December
31, 2002, respectively.

<TABLE>
<CAPTION>

                                                     YEAR ENDED DECEMBER 31,
                                        -----------------------------------------------
                                                 2001                   2002
                                                 ----                   ----
PRODUCT CATEGORY                        CARLOADS     REVENUES    CARLOADS    REVENUES
----------------                        --------  ------------   --------  ------------
                                                  (IN MILLIONS)            (IN MILLIONS)
<S>                                     <C>       <C>            <C>       <C>
Industrial products, metals and ...
  minerals ........................      196,119      $  176.9    227,067      $  195.6
Agro-industrial products ..........      136,000         167.4    110,956         140.8
Automotive products ...............      150,987         171.4    131,926         154.1
Chemical and petrochemical products       77,159          98.6     83,406         107.7
Intermodal freight ................      162,443          42.6    190,694          56.3
Other .............................            0          10.9          0           6.0
                                         -------      --------    -------      --------
TFM ...............................      722,708      $  667.8    744,049      $  660.5
                                         =======      ========    =======      ========
Texas Mexican Railway Company .....       92,194          52.8     91,550          51.6
                                         -------      --------    -------      --------
   Total TFM ......................      814,902      $  720.6    835,599      $  712.1
                                         =======      ========    =======      ========
</TABLE>

      Manufactured products, industrial products, metals and minerals. Revenues
increased by $18.7 million or 10.6% in 2002 compared with 2001. A significant
portion of this revenue growth has been the result of conversion of industrial
products traffic from truck to rail transport. Additionally, we experienced
significant growth in the

                                      -53-

<PAGE>

transportation of home appliances, mainly due to operations of Mabe's new
manufacturing plant, located near our rail lines, as well as in the
transportation of beer for export. We also experienced an increase in the
transport of cement and scrap materials for domestic consumption.

      Agro-industrial products. Revenues decreased by $26.6 million or 15.9% in
2002 over 2001. This decrease was partially attributable to extraordinary
weather conditions. This year has also been impacted by a reduction of basic
grain imports due to severe droughts in the U.S. and Canada. Additionally, the
transport of domestic grain products was seriously impacted by the worst grain
crop in the last fifteen years.

      Automotive products. Revenues decreased by $17.3 million or 10.1% in 2002
over 2001. This decrease was a result of the decline in production due to the
continued recession in the U.S. and the reduction of the exports market. In
2002, we experienced decreased revenues as a result of the closure of the
DaimlerChrysler plant in Lago Albert and the reduction of Ford exports from the
Cuautitlan plant.

      Chemical and petrochemical products. Revenues increased by $9.1 million or
9.2% in 2002 over 2001. Contributing to revenue growth were new petroleum coke
traffic for CEMEX and new routes for transportation of fuel oil for CFE, the
Mexican electric utility, as well as continued conversion from truck to rail
transport during the year of products used in the production of plastic. Such
increases in traffic volume, were partially offset by the loss of traffic from
PEMEX as a result of its installation of pipelines.

      Intermodal freight. Revenues increased by $13.7 million or 32.2% in 2002
over 2001. This increase was due to a great extent to continued conversion from
truck to rail transport. The increase also reflected the positive results in
2001 of conversion projects initiated in 1999 and 2000. We have entered into
long-term contracts with a number of our automotive customers to transport auto
parts and other products through our new intermodal facilities which we are
building near their plants, as well as new contracts with intermodal marketing
customers, using the road-railer equipment and additional equipment capacity. We
expect this additional business to offset part of the impact of the U.S.
economic downturn.

      Texas Mexican Railway Company. In 2002, the Texas Mexican Railway
Company's revenues decreased by $1.2 million or 2.3% over 2001 with total
transportation revenue of $51.6 million. This decrease was mainly a result of
the decline in BNSF traffic of oil and natural fat from Nuevo Laredo to Eagle
Pass and the reduction of the traffic of paper, corrugated paper and scrap
paper, among others.

      OPERATING EXPENSES

      Total operating expenses amounted to $557.7 million for the year ended
December 31, 2002, compared to $570.5 million for the year ended December 31,
2001, which represents a decrease of 2.2%. The following table illustrates our
operating expenses for the periods indicated as a percentage of revenues
generated during the corresponding periods.

<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                                 ---------------------------------------------------
                                           2001                      2002
                                           ----                      ----
                                                  % OF                        % OF
                                    AMOUNT       REVENUE       AMOUNT        REVENUE
                                 -------------   -------   -------------     -------
                                 (IN THOUSANDS)            (IN THOUSANDS)
<S>                              <C>             <C>       <C>               <C>
Salaries, wages and employee
   benefits .................      $128,845         17.9%    $124,413         17.5%
Purchased services ..........       147,015         20.4      163,835         23.0
Fuel ........................        59,370          8.2       50,139          7.0
Materials and supplies ......         9,349          1.3        8,455          1.2
Car hire -- net .............        49,035          6.8       43,070          6.0
Rents other than car hire ...        61,311          8.5       56,563          7.9
Casualties and insurance ....        21,560          3.0       14,853          2.1
Other costs .................        15,670          2.2       14,942          2.1
Depreciation and amortization        78,345         10.9       81,401         11.4
                                   --------         ----     --------         ----
  Total operating expenses ..      $570,500         79.2%    $557,671         78.3%
                                   ========         ====     ========         ====
</TABLE>

                                      -54-
<PAGE>

      Salaries, wages and employee benefits. Salary expenses decreased 3.4% to
$124.4 million in 2002 compared to 2001. The decrease was largely attributable
to the reduction in our average number of full-time employees by 3.8% to 3,469
in 2002 from 3,608 in 2001 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, 2001.

      Purchased services. Costs of purchased services increased by $16.8 million
or 11.4% in 2002 over 2001. Costs of purchased services consisted primarily of
expenses related to equipment maintenance of locomotives and cars, haulage,
terminal services and security expenses. The increase in the costs of purchased
services was attributable to maintenance of locomotives, the increase of our
terminal services operation, maintenance of our Celaya-Lazaro Cardenas line and
advertising expenses.

      Fuel. Our fuel expenses decreased 15.5% in the year ended December 31,
2002 compared to the year ended December 31, 2001 primarily due to an 11.2%
decrease in the average price of diesel fuel per gallon. Additionally, in 2002
our fuel consumption decreased 2.2% compared to 2001.

      Materials and supplies. Costs of materials and supplies consumed in the
year ended December 31, 2002 were 9.6% lower than in the year ended December 31,
2001, primarily because we had lower consumption of materials and supplies
related to our 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 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 12.2% in
the year ended December 31, 2002 from the year ended December 31, 2001. Our car
hire - net expenses decreased primarily because a favorable resolution was
granted to us to recover the 5.0% withholding tax we paid in 2002. We expect
that car hire - net expenses will increase at a slower rate in 2003 due to a
lower rate of volume growth.

      Rents other than car hire. Rents other than car hire include locomotive
leases and railcar and equipment rental expenses. These expenses decreased by
$4.7 million or 7.7% in the year ended December 31, 2002 from the year ended
December 31, 2001. The decrease in the cost of rents other than car hire was
attributable to the higher number of locomotives subleased to third parties.

      Casualties and insurance. These expenses decreased 31.1% in the year ended
December 31, 2002 from the year ended December 31, 2001 due to a decrease in
claims of cargo damage.

      Other costs. Other costs consist primarily of employee expenses such as
the costs of meals, lodging, travel, as well as the concession duty payable to
the Mexican government and the allowance for doubtful accounts. These expenses
decreased in the year ended December 31, 2002 mainly due to a decrease of $0.6
million in allowance for doubtful accounts. The concession duty, which is
accounted for under this line item, is calculated as 0.5% of gross revenues from
our rail lines during the first 15 years of the concession, increasing to 1.2%
of gross revenues thereafter.

      Depreciation and amortization. Depreciation and amortization expenses in
the year ended December 31, 2002 increased by $3.1 million from the year ended
December 31, 2001 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 increased to $4.3 million in the year ended
December 31, 2002 from $150.1 million in the year ended December 31, 2001,
representing an increase of approximately 2.9%, due to the factors described
above. Our operating ratio decreased to 78.3% for the year ended December 31,
2002 from 79.2% for the year ended December 31, 2001.

                                      -55-

<PAGE>

      OTHER EXPENSES

      Other expense - net. Our other expenses - net increased by $53.9 million
in the year ended December 31, 2002 from the year ended December 31, 2001 due to
a one-time profit in 2001 resulting from the sale by TFM to the Mexican
government of the redundant La Griega-Mariscala line, which amounted to a gain
of $60.7 million.

      Interest expense - net. Interest expense - net for the year ended December
31, 2002 was $96.7 million compared to $82.5 million in the year ended December
31, 2001. Our interest expense - net increased due to our 2012 senior notes
issued on June 13, 2002, thus increasing our outstanding indebtedness and
interest expenses. We also refinanced our U.S. $310.0 million commercial paper
program on September 17, 2002, reducing that program by $60.0 million and
substituting it with our $128.0 million term loan facility and $122.0 million
commercial paper program.

      Exchange gain (loss) - net. We recorded a net foreign exchange loss of
$17.5 million in the year ended December 31, 2002 compared to a net foreign
exchange gain of $2.8 million in the year ended December 31, 2001. 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 2002
and 2001, the Dollar appreciated 13.9% and depreciated 4.5%, respectively,
relative to the Peso.

      Deferred income tax. Our deferred income tax expense was $32.0 million for
the year ended December 31, 2002 compared to a deferred income tax expense of
$2.6 million for the year ended December 31, 2001. We realized a deferred income
tax expense in the year ended December 31, 2001 due to the profit recorded from
the sale of the redundant La Griega-Mariscala line, which was considered taxable
income. The income tax expense in the year ended December 31, 2002 is a result
of the effect of the depreciation of the Peso against the Dollar in our fixed
assets and the reduction of working capital provisions.

      RESULTS OF OPERATIONS OF GRUPO TFM

      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 the 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 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. 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 $20.4 million
in 2001 compared to $10.2 million in 2000. This increase was driven by the
improvement in the net income of TFM from $50.8 million in 2000 compared to
$102.1 million in 2001.

      See Item 3D, "Risk Factors -- Mexican regulatory, political and economic
risks associated with emerging market economies could adversely affect our
financial condition and results of operations." for a discussion regarding the
impact of inflation, foreign currency fluctuations and Mexican governmental
policies on our business.

B. LIQUIDITY AND CAPITAL RESOURCES

      The discussion under "Liquidity and Capital Resources" is presented for
TFM only, but applies in all material respects to Grupo TFM.

      We have a substantial amount of debt and significant debt service
obligations. 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 in the future. Our ability
to satisfy our obligations under our debt in the future will depend upon our
future performance, including our ability to increase revenues significantly and
control expenses. Our future operating performance depends upon prevailing
economic, financial, business and competitive conditions and other factors, many
of which are beyond our control. If our cash flow from operations is
insufficient to satisfy our obligations, we may take specific actions, including
delaying or reducing capital expenditures, attempting to refinance our debt at
or prior to its maturity or, in the absence of such refinancing, attempting to
sell assets quickly in order to make up for any shortfall in payments under
circumstances that might not be favorable to getting the best price for the
assets, or seeking additional equity capital. Our ability to

                                      -56-

<PAGE>

refinance our debt and take other actions will depend on, among other things,
our financial condition at the time, the restrictions in the instruments
governing our debt and other factors, including market conditions, the
macroeconomic environment and such variables as the Peso-Dollar exchange rate
and benchmark money market rates in Pesos and Dollars, beyond our control.

      Our business is capital intensive and requires ongoing substantial
expenditures for, among other things, improvements to roadway, structures and
technology, capital expenditures, leases and repair of equipment, and
maintenance of our rail system. 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. Also, additional financing may not be
available to us. Our principal sources of liquidity consist of cash flow from
operations, existing cash balances, vendor financing and debt financing. In our
opinion, our working capital, as of December 31, 2003, is sufficient for our
present requirements.

CASH FLOWS FROM OPERATING ACTIVITIES

      We generated positive cash flows from operating activities in the years
ended December 31, 2003 and December 31, 2002. Net cash provided by operating
activities was $99.7 million for 2003 compared to $125.2 million for 2002. The
decrease in 2003 resulted mainly from a decrease in operating income as well as
changes in non-cash items and changes in both operating assets and liabilities
as described below. We generated positive cash flows from operating activities
in the years ended December 31, 2002 and 2001 as compared to prior periods. Net
cash provided from operating activities was $125.2 million for 2002 compared to
$120.1 million for 2001. The increase in 2002 resulted mainly from an increase
in operating income as well as changes in non-cash items and changes in both
operating assets and liabilities as described below.

      The following table summarizes cash flows from operating activities for
the periods indicated.

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                      ------------------------------------------------
                                                                          2001               2002              2003
                                                                          ----               ----              ----
                                                                                        (IN THOUSANDS)
<S>                                                                   <C>                 <C>              <C>
Net income for the period .......................................     $   102,154         $   (11,350)     $   (61,044)
  Depreciation and amortization .................................          78,345              81,401           85,403
  Amortization of discount on 11.75% senior discount debentures .          49,408(1)           23,158              370
  Deferred income tax (benefit) expense .........................           2,550              32,033           34,107
  Minority interest .............................................              --                 (84)            (383)
  Loss on sale of property, machinery and equipment -- net ......           7,585               6,897            2,909
  Gain on transfer of concession rights -- net ..................         (60,744)                 --               --
  Changes in current assets and liabilities......................         (59,246)             (6,805)          38,302
                                                                      -----------         -----------      -----------
Net operating cash flows ........................................     $   120,052         $   125,250      $    99,664
                                                                      ===========         ===========      ===========
</TABLE>

-----------------------
(1) Includes amortization of discount on senior discount debentures and
commercial paper.

CASH FLOWS FROM INVESTING ACTIVITIES

      A significant portion of our capital expenditures is tied to volume of
traffic, and is therefore variable to the extent such volumes change. Capital
expenditures do not include locomotives or railcars leased under operating
leases.

      Net cash used in investing activities was $70.7 million in 2003. We made
capital expenditures in an aggregate amount of $73.1 million in 2003, consisting
mostly 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 the Texas
Mexican Railway Company and the northern portion of the international rail
bridge at Laredo, for an aggregate purchase price of $64.0 million. The purchase

                                      -57-

<PAGE>

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.

      In addition, we acquired the call option shares from FNM and Nafin on July
29, 2002 for an aggregate purchase price of $256.1 million. The $256.1 million
purchase price for the call option 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 recent transfer of a redundant portion of
our track to the Mexican government, together with cash from our operations. See
Item 4C, "Information on the Company -- Organizational Structure -- Equity
Interest of the Mexican Government in Grupo TFM and TFM; Negotiation of Certain
Related Matters with the Government -- Equity Interest of the Government in
Grupo TFM and TFM."

      Net cash used in investing activities was $83.2 million in 2001. We made
capital expenditures in an aggregate amount of $85.2 million in 2001. Most of
our capital expenditures in 2001 related to ongoing projects such as track
rehabilitation, construction of operating and intermodal facilities and
capitalization of our locomotive overhaul expenses. In addition, in March 2001,
the Texas Mexican Railway Company acquired an abandoned 84.5 mile line located
between Victoria and Rosenberg, Texas, for an aggregate purchase price of $9.3
million.

CASH FLOWS FROM FINANCING ACTIVITIES

      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 the 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 senior notes due 2012 and the refinancing of our U.S.
$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 is 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 $152.9
million (net of discounts, expenses and the cash fee paid to consenting holders
of the 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 call option shares, which was $256.1 million.

      In 2001, cash used in financing activities amounted to $29.4 million
mainly as a result of the repayment of $25.0 million in outstanding principal
amount under our commercial paper program and the payment of our capital lease
obligations.

      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.

                                      -58-

<PAGE>

CONTRACTUAL OBLIGATIONS

      The following table outlines our obligations for payments under our
indebtedness (including capital leases), purchase obligations, operating leases
and other obligations and for the periods indicated using balances as of
December 31, 2003:

                     (Figures in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                       LESS THAN 1                                   MORE THAN 5
       INDEBTEDNESS(1)                     YEAR        1-3 YEARS      3-5 YEARS         YEARS          TOTAL
                                           ----        ---------      ---------         -----          -----
<S>                                    <C>             <C>            <C>            <C>            <C>
Senior notes due 2012 .............     $   23,659     $   47,319     $   47,319     $  239,148     $  357,445
Senior discount debentures due 2009         54,796        109,593        109,593        480,868        754,850
Senior notes due 2007 .............         16,167         32,334        158,084             --        206,585
Commercial paper program(2) .......         87,457             --             --             --         87,457
Term loan facility(3) .............         40,270         76,095             --             --        116,365
Capital leases ....................            414            598            596            362          1,970
                                        ----------     ----------     ----------     ----------     ----------
         TOTAL INDEBTEDNESS .......     $  222,763     $  265,939     $  315,592     $  720,378     $1,524,672
                                        ==========     ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                       LESS THAN 1                                   MORE THAN 5
       OPERATING LEASES(4)                 YEAR        1-3 YEARS      3-5 YEARS         YEARS          TOTAL
       ----------------                    ----        ---------      ---------         -----          -----
<S>                                    <C>             <C>            <C>            <C>            <C>
Locomotive operating leases ...         $   29,135     $   58,190     $   58,230     $  315,038     $  460,593
Railcar operating leases ......             31,930         28,233         19,931         40,943        121,037
                                        ----------     ----------     ----------     ----------     ----------
         TOTAL OPERATING LEASES         $   61,065     $   86,423     $   78,161     $  355,981     $  581,630
                                        ==========     ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                       LESS THAN 1                                   MORE THAN 5
       PURCHASE OBLIGATIONS                YEAR        1-3 YEARS      3-5 YEARS         YEARS          TOTAL
       --------------------                ----        ---------      ---------         -----          -----
<S>                                    <C>             <C>            <C>            <C>            <C>
Fuel purchase agreement(5) .........    $              $              $              $              $
Locomotive maintenance agreement ...        41,611         83,223         83,223        192,971        401,028
Track maintenance and rehabilitation
   agreement .......................        13,984         16,354         11,616         11,660         53,614
                                        ----------     ----------     ----------     ----------     ----------
         TOTAL PURCHASE OBLIGATIONS     $   55,595     $   99,577     $   94,839     $  204,631     $  454,642
                                        ==========     ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                       LESS THAN 1                                   MORE THAN 5
       OTHER                               YEAR        1-3 YEARS      3-5 YEARS         YEARS          TOTAL
       -----                               ----        ---------      ---------         -----          -----
<S>                                    <C>             <C>            <C>            <C>               <C>
Grupo TFM Mexican government put
  option(6)..........................         1.57(4)                                                     1.57(4)
                                              ----           ----          ----            ----           ----
         TOTAL OTHER ................         1.57(4)                                                     1.57(4)
                                              ====           ====          ====            ====           ====
</TABLE>

-------------------------
(1)   These amounts include principal and interest payments.

(2)   On June 24, 2004, TFM entered into an amendment to the term loan facility
      in order to refinance the commercial paper program. See "Certain Recent
      Developments -- Amendment to TFM's Term Loan Facility and Refinancing of
      TFM's Commercial Paper Program."

(3)   On June 24, 2004, TFM entered into an amendment to the term loan facility
      in order to refinance the commercial paper program. See "Certain Recent
      Developments -- Amendment to TFM's Term Loan Facility and Refinancing of
      TFM's Commercial Paper Program."

(4)   These amounts include the minimum lease payments.

(5)   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, 2003 was $230.63 per
      cubic meter.

(6)   Represents 1,570.3 million UDIs valued at $3.352003 at an exchange rate of
      $11.23 per UDI at December 31, 2003.

      In addition to the contractual obligations set forth above, under the
terms of our concession, we are required to pay the Mexican government a fee
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, 2001, 2002 and 2003, the concession
duty expense amounted to $3.4 million, $3.3 million and $3.6 million,
respectively, which was recorded as an operating expense.

      Following is a discussion of the terms of the contractual obligations
      outlined above.

                                      -59-

<PAGE>

      12.50% SENIOR NOTES DUE 2012

      TFM issued the 2012 senior notes on June 13, 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 passu in 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 TFM's option, in whole or in part, on or after June 15, 2007, subject to
certain limitations, at any time in the event of certain changes in Mexican tax
law, and prior to maturity, at the following redemption prices (expressed in
percentages of principal amount at maturity), plus accrued and unpaid interest,
if any:

<TABLE>
<CAPTION>
                            REDEMPTION
YEAR                          PRICE
----                        ----------

<S>                         <C>
2007.....................    106.250%
2008.....................    104.167%
2009.....................    102.083%
2010 and thereafter......    100.000%
</TABLE>

      11.75% SENIOR DISCOUNT DEBENTURES DUE 2009

      Our 2009 debentures, denominated in Dollars, were issued in June 1997 at a
substantial discount from their principal amount of $443.5 million, and no
interest accrued on the 2009 debentures prior to June 15, 2002. The 2009
debentures will mature on June 15, 2009. The discounted offering price of the
2009 debentures represents a fixed yield to maturity of 11.75%, computed on the
basis of semiannual compounding and maturing on June 15, 2002. Interest on the
2009 debentures is payable semiannually at a fixed rate of 11.75%, commencing on
December 15, 2002. The 2009 debentures are redeemable, at our option, in whole
or in part, on or after June 15, 2002 and prior to maturity, at the following
redemption prices (expressed in percentages of principal amount at maturity),
plus accrued and unpaid interest, if any:

<TABLE>
<CAPTION>
                             SENIOR DISCOUNT
                                DEBENTURE
YEAR                         REDEMPTION PRICE
----                         ----------------
<S>                          <C>
2002......................      105.8750%
2003......................      102.9375%
2004 and thereafter.......      100.0000%
</TABLE>

      The 2009 debentures are also redeemable at our option, subject to certain
limitations, in the event of certain changes in Mexican tax law. The 2009
debentures are unsecured, unsubordinated obligations of TFM, are ranked pari
passu in 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 2009 debentures are unconditionally guaranteed on an
unsecured, unsubordinated basis by Grupo TFM.

      10.25% SENIOR NOTES DUE 2007

      We issued 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,
are ranked pari passu in 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.

                                      -60-

<PAGE>

      BANK FACILITIES

      On September 19, 2000, TFM established a two-year U.S. commercial paper
program in the amount of $290.0 million supported by a letter of credit. The
commercial paper program was backed by an irrevocable direct-pay letter of
credit issued by Westdeutsche Landesbank Girozentrale, S.A., New York Branch.
The commercial paper program was established pursuant to a credit agreement,
dated as of September 19, 2000, among TFM, Westdeutsche Landesbank Girozentrale,
S.A., New York Branch, as issuing bank, Chase Securities Inc., as lead arranger
and book manager, Bank of America Securities LLC and Westdeutsche Landesbank
Girozentrale, S.A., New York Branch, as co-documentation agents, co-syndication
agents and arrangers, The Chase Manhattan Bank, as administrative agent, and the
several banks parties thereto. The commercial paper program was first amended by
the Amendment and Joinder Agreement, dated as of December 5, 2000, in order to
increase the amount of the commercial paper program from $290.0 million to
$310.0 million. The commercial paper program was amended again by the Second
Amendment, dated as of September 25, 2001, in order to conform the time period
of the restricted payments covenant to that of the indentures for our existing
notes.

      On September 17, 2002, TFM entered into two bank facilities provided by a
consortium of banks for an aggregate amount of $250.0 million in order to
refinance our U.S. $310.0 million commercial paper program. One of the
facilities consists of a two-year commercial paper program in the amount of
$122.0 million, which is supported by a letter of credit issued under the term
loan facility. The commercial paper program allows us to drawdown advances from
time to time, subject to certain terms and conditions. The obligations of the
commercial paper program rank pari passu with our other senior unsecured
indebtedness. The commercial paper program contains customary covenant
restrictions, including the maintenance of certain coverage tests, restrictions
on certain payments, limitations on dividends, limitations on affiliate
transactions and restrictions on asset sales.

      The other loan facility is a four-year term loan in the amount of $128.0
million. The term loan facility is payable in semi-annual installments beginning
in September 2003 and ending in September 2006. The obligations of the term loan
facility rank pari passu with our other senior unsecured indebtedness. The term
loan facility contains customary covenant restrictions, including the
maintenance of certain coverage tests, restrictions on certain payments,
limitations on dividends, limitations on affiliate transactions and restrictions
on asset sales. TFM used approximately $60.0 million of the proceeds of the bank
facilities to retire the commercial paper program which resulted in an overall
reduction of our outstanding level of debt. As of December 31, 2003, there were
$85.0 million outstanding under the commercial paper program and $109.7 million
outstanding under the term loan facility.

      The credit agreements relating to the bank facilities contain covenants
that are more restrictive than those contained in the indentures relating to the
2007 senior notes and the 2009 debentures, including certain financial covenants
which require us to maintain specified financial ratios. The notes issued under
our current $122.0 million commercial paper program have maturities of up to 360
days.

      On May 2, 2003 the credit agreements relating to the bank facilities were
amended in order to defer scheduled "stair step" increases in the interest
coverage and leverage coverage maintenance ratios under the agreements to keep
them in line with our expected financial results for the periods underlying both
credit agreements.

      On June 24, 2004, TFM entered into an amendment to the term loan
facility, in order to refinance the commercial paper program. See "Certain
Recent Developments -- Amendment to TFM's Term Loan Facility and Refinancing of
TFM's Commercial Paper Program."

      COVENANTS

      The indentures governing our securities and the credit agreements
governing our commercial paper program and term loan facility contain a number
of restrictive covenants, and any additional financing arrangements we enter
into may contain additional restrictive covenants. A breach of any of these
covenants may result in a default under the respective indenture or the credit
agreement. If we fail to comply with these restrictive covenants, our obligation
to repay the relevant indebtedness may be accelerated. In addition, a default
under these covenants could affect our ability to refinance our existing
indebtedness.

      On June 24, 2004, TFM entered into an amendment to the term loan facility
in order to refinance the commercial paper program. The amended term loan
facility contains customary covenants, including limitations on dividends,
limitations on investments, limitations on prepayments of (and amendments to
the terms of) other indebtedness, limitations on sale and leaseback
transactions, limitations on asset sales, limitations on the incurrence of
indebtedness, and limitations on affiliate transactions. Under the amended term
loan facility, TFM is also subject to various financial covenants, including
maintaining certain consolidated interest coverage, consolidated fixed charge
coverage and consolidated leverage ratios. See "Certain Recent Developments --
Amendment to TFM's Term Loan Facility and Refinancing of TFM's Commercial Paper
Program."

      We did not meet certain required maintenance covenants regarding financial
ratios under our bank credit facilities for each of the three months 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. If such waivers are not obtained, we would be in default under
our bank credit facilities and such

                                      -61-

<PAGE>

default could result in acceleration of amounts due under the bank credit
facilities and in cross-defaults under other obligations.

      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 May 1998 and September 1999, we entered into two locomotive operating
lease agreements, which allow TFM to maintain a state-of-the-art and efficient
fleet of locomotives, each operating lease covering 75 locomotives, which expire
at various times over the next 18 and 19 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.

      FUEL PURCHASE AGREEMENT

      On December 19, 1997, we entered into a fuel purchase agreement with PEMEX
Refinacion, 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 30 days' written notice.

      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, which enables 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 which expires in 2012. Under this contract, the contractor provides
both routine maintenance and major rehabilitation of our Celaya-Lazaro Cardenas
line, which extends approximately 350 miles. The agreement contains standard
provisions for this type of operating agreement.

      MEXICAN GOVERNMENT'S PUT OPTION ON ITS EQUITY INTEREST IN TFM

      See Item 8A, "Financial Information -- Consolidated Statements and Other
Financial Information -- Legal Proceedings -- Mexican Government's Put on its
Equity Interest in TFM."

CAPITAL EXPENDITURES

      We made capital expenditures of $73.1 million, representing 10.5% of our
transportation revenues, in 2003. Of our capital expenditures in 2003, $48.7
million was primarily for improvements to our rail line and $18.4 million was
for upgrades of our locomotives and freight cars. We made capital expenditures
of $11.6 million, representing

                                      -62-

<PAGE>

6.9% of our transportation revenues, for the quarter ended March 31, 2004. We
expect to make capital expenditures in each of 2004 and 2005 in an amount of up
to $90.2 million and $109.2 million, respectively. These capital expenditures
include the expenses we expect to incur for (i) the rehabilitation and
improvement of our secondary rail lines, (ii) the construction of new intermodal
terminals near the manufacturing plants of our automotive customers, (iii) the
acquisition and improvement of track equipment, (iv) the modernization of our
microwave 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 Item 5A, "Operating Results -- Executive Summary" and Item 5B,
"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 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 Item 5B, "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

      TFM's Estatutos Sociales (by-laws), provide that its board of directors
shall consist of eight directors and their respective alternates. TFM's Class I
and Class II shareholders (Grupo TFM) elect seven directors and their
corresponding alternate directors, and TFM's Class III shareholders (the Mexican
government) elect one director and its alternate director. 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.

      The members of the board of directors of TFM and their principal
occupations are as follows:

<TABLE>
<CAPTION>
           NAME                           PRINCIPAL OCCUPATION
           ----                           --------------------
<S>                       <C>
Jose Serrano Segovia....  Chairman and Chief Executive Officer of Grupo TMM
James R. Jones..........  Director of KCS
Michael R. Haverty......  Chairman, President and Chief Executive Officer of KCS
Gerald K. Davies........  Executive Vice President and Chief Operating Officer of KCS
Javier Segovia Serrano..  President of Grupo TMM
Ramon Serrano Segovia...  Vice Chairman of Grupo TMM
Horacio Reyes Guzman....  Corporate Planning Director of Grupo TMM
</TABLE>

      The alternate directors of TFM are Enrique Martinez Sanchez, Jay M.
Nadlman, Ronald G. Russ, Jerry W. Heavin, Gerardo Primo Ramirez, Jose Manuel
Munoz Arteaga and Juan Fernandez Galeazzi.

      Grupo TFM's by-laws provide that Grupo TFM's board of directors shall
consist of seven directors and their respective alternates. Grupo TFM's Series A
shareholders elect four directors and their corresponding alternates. Grupo
TFM's Series B shareholder elects three directors and their corresponding
alternates. Grupo

                                      -63-

<PAGE>

TFM's board of directors is responsible for the management of Grupo TFM. The
members of the board of directors are elected annually.

      The members of the board of directors of Grupo TFM and their principal
occupations are as follows:

<TABLE>
<CAPTION>
         NAME                               PRINCIPAL OCCUPATION
         ----                               --------------------
<S>                          <C>
Jose Serrano Segovia.......  Chairman and Chief Executive Officer of Grupo TMM
James R. Jones.............  Director of KCS
Michael R. Haverty.........  Chairman, President and Chief Executive Officer of KCS
Gerald K. Davies...........  Executive Vice President and Chief Operating Officer of KCS
Javier Segovia Serrano.....  President of Grupo TMM
Ramon Serrano Segovia......  Vice Chairman of Grupo TMM
Jacinto Marina Cortes......  Chief Financial Officer of TFM and Grupo TFM
</TABLE>

      The alternate directors of Grupo TFM are Horacio Reyes Guzman, Jay M.
Nadlman, Ronald G. Russ, Jerry W. Heavin, Gerardo Primo Ramirez, Jose Manuel
Munoz and Juan Fernandez Galeazzi.

JOSE SERRANO SEGOVIA

      Mr. Serrano was elected in 1997. Mr. Serrano is also Chairman and Chief
Executive Officer of Grupo TMM, Chairman of the Executive Committee of the Texas
Mexican Railroad Company, Chairman of the board of directors of Grupo TFM and
also serves as a member of the board of directors of various Mexican companies,
including Grupo Financiero Invermexico and the Mexican Businessmen's Council. In
the past, Mr. Serrano has served as Chairman of the board of directors of Grupo
Anahuac, S.A. de C.V. as well as Hules Mexicanos, S.A. de C.V., a leading
Mexican petrochemical company.

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.

MICHAEL R. HAVERTY

      Mr. Haverty was elected in 1997. 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.

GERALD K. DAVIES

      Mr. Davies was elected in 2002. Mr. Davies joined KCSR in January 1999 and
has served as a Director of KCSR since November 1999. Prior to joining KCSR, Mr.
Davies served as the Executive Vice President of Marketing of the Canadian
National Railway from 1993 through 1998. Mr. Davies has also held senior
management positions with BNSF and CSX Transportation, Inc.

JAVIER SEGOVIA SERRANO

      Mr. Segovia was elected in 1997. Mr. Segovia has served as President of
Grupo TMM since 1999 and has served in various executive positions with
companies owned by Promotora Servia, S.A. de C.V. since 1987. He served as
President of Grupo Servia, Chief Financial Officer of Hules Mexicanos, S.A. de
C.V. and as Chief Executive Officer of Electropura.

                                      -64-

<PAGE>

RAMON SERRANO SEGOVIA

      Mr. Serrano was elected in 1997. He also serves as Vice Chairman of the
board of directors of Grupo TMM and has served as the Vice Chairman of Grupo
Servia. Mr. Serrano is an independent investor and holds several investments
related to agrobusiness.

HORACIO REYES GUZMAN

      Mr. Reyes was elected in 2001. Mr. Reyes has also served as Planning
Director of Grupo TMM since 1999. Prior to joining TFM, Mr. Reyes worked for a
consulting firm focusing on strategic planning and also worked in the financial
and planning sector for various Mexican multinational companies engaged in
industry and tourism, including Cementos Anahuac, S.A. de C.V. Mr. Reyes has
also been a member of the board of directors of the Texas Mexican Railway
Company.

JACINTO MARINA CORTES

      Mr. Marina joined us in May 2003. Mr. Marina served as Chief Financial
Officer and a director of Grupo TMM from 1991 to April 2003. He also serves as a
member of the Executive Committee and Executive Finance Committee of TFM. Marina
previously served as an executive officer of several other Mexican companies in
the transportation services and manufacturing sectors, including Mexicana de
Aviacion, S.A., Hoteles Camino Real, S.A. de C.V. and Cementos Anahuac, S.A. de
C.V.

      At a shareholders' meeting held on July 30, 2002, the holders of the Class
I, II and III shares elected the directors of TFM and Grupo TFM for a term
ending on December 31, 2002. Under Mexican law, they will remain in place until
new directors are elected at a subsequent shareholders' meeting.

      Jose Serrano Segovia, who is a member of TFM's and Grupo TFM's board of
directors, is a brother of Ramon Serrano Segovia, who is a member of TFM's and
Grupo TFM's board of directors.

      Javier Segovia Serrano, a member of TFM's and Grupo TFM's board of
directors, is the nephew of both Jose Serrano Segovia and Ramon Serrano Segovia.

EXECUTIVE COMMITTEE AND EXECUTIVE FINANCE COMMITTEE

      Under the by-laws of TFM and Grupo TFM, the holders of TFM Class I and
Class II shares are entitled to elect a four-member Executive Committee, and
corresponding alternates, to assist the board of directors in the management of
the company. The members of each of the Executive Committees of TFM and Grupo
TFM are Javier Segovia Serrano, Jacinto Marina Cortes, Michael R. Haverty and
Gerald K. Davies.

      The board of directors of TFM has appointed a two-member Executive Finance
Committee to serve in an advisory role to the Chief Financial Officer of TFM.
The members of the Executive Finance Committee are Jacinto Marina Cortes and
Ronald G. Russ.

                                      -65-

<PAGE>

OFFICERS

      The officers of each of TFM and Grupo TFM serve at the discretion of each
company's respective board of directors. The executive officers of TFM and Grupo
TFM and their titles are as follows:

<TABLE>
<CAPTION>
            NAME                                           TITLE
            ----                                           -----
<S>                                       <C>
Mario Mohar Ponce.....................    Chief Executive Officer
Jacinto Marina Cortes.................    Chief Financial Officer
Manuel V. Zulaica.....................    Chief Operating Officer
Juan Ignacio Lopez Fernandez..........    Executive Vice President -- Commercial
Juan Vergara Kuri.....................    Director of Human Resources
Pedro Cabrera.........................    Director of Labor Relations
Marco Flavio Rigada Soto..............    General Counsel
Jose Jorge Masvidal Flores............    Director of Information Technology
Guillermo Gutierrez Muro..............    Internal Audit Director
Enrique Alvarez de la Borbolla........    Customer Services Director
Frank P. Hernandez....................    Vice President -- Operations Support
Cesar Polack Belaunde.................    Chief Engineer
Carlos Aguilar........................    Administrative Director (Controller)
Leon Ortiz............................    Treasurer
Francisco J. Fernandez Galeazzi.......    Procurement Director
Federico Diaz Page....................    Vice President -- Planning and Service Design
Ernesto G. Fernandez..................    Chief Mechanical Officer
Jacobo Jacome.........................    Chief Transportation Officer
Jorge Manuel Marquez Abreu............    Planning and Marketing Director
Carlos Ignacio Porragas Gonzalez......    Vice President -- Sales
Guillermo Maafs.......................    Revenue Management Director
Dan Beers.............................    Vice President -- Intermodal and Automotive
James Kniestedt.......................    Vice President -- Security and Railroad Police
</TABLE>

MARIO MOHAR PONCE, CHIEF EXECUTIVE OFFICER

      Mr. Mohar joined us in November 1996. Mr. Mohar has over 12 years of
experience in the Mexican transportation industry in a variety of positions. Mr.
Mohar founded Kingsley de Mexico and was its Chief Executive Officer from March
1994 until joining us. From November 1990 to February 1994, Mr. Mohar served as
Chief Operating Officer of Grupo TMM. Prior to joining Grupo TMM, Mr. Mohar was
Chief Executive Officer of Hules Mexicanos, S.A. de C.V., a leading Mexican
petrochemical company. Mr. Mohar is also the President and Chief Executive
Officer of the Texas Mexican Railway Company.

JACINTO MARINA CORTES, CHIEF FINANCIAL OFFICER

      Mr. Marina joined us in May 2003. Mr. Marina served as Chief Financial
Officer and a director of Grupo TMM from 1991 to April 2003. He serves as a
member of the Executive Committee and Executive Finance Committee of TFM. Mr.
Marina previously served as an executive officer of several other Mexican
companies in the transportation services and manufacturing sectors, including
Mexicana de Aviacion, S.A., Hoteles Camino Real, S.A. de C.V. and Cementos
Anahuac, S.A. de C.V.

MANUEL V. ZULAICA, CHIEF OPERATING OFFICER

      Mr. Zulaica joined us in May 2000 and has served as Chief Operating
Officer since September 2003. Mr. Zulaica has over 11 years of experience in the
railroad industry, having worked in various positions in the U.S., Canada and
Mexico for the Canadian Pacific Railroad.

                                      -66-

<PAGE>

JUAN IGNACIO LOPEZ FERNANDEZ, EXECUTIVE VICE PRESIDENT -- COMMERCIAL

      Mr. Lopez joined us in March 1997. Mr. Lopez was with Grupo TMM for four
years prior to joining us, serving in various positions, including Director of
Sales and Customer Service and, from 1995 to 1997, as Director of Strategic
Planning and Alliances.

JUAN VERGARA KURI, DIRECTOR OF HUMAN RESOURCES

      Mr. Vergara joined us in December 1997. Mr. Vergara has 17 years of
experience in human resources, having served in various positions in Mexico for
Ford Motor Company, Eastman Kodak, DaimlerChrysler and VISA.

PEDRO CABRERA, DIRECTOR OF LABOR RELATIONS

      Mr. Cabrera joined us in December 1997. Mr. Cabrera has more than 30 years
of experience in human resources and labor relations, including having served as
Legal and Labor Relations Sub-Director for FNM from 1994 to 1995 and as a Human
Resources Labor Relations Consultant for Panamerican Protection Services from
1995 to 1996. Prior to joining us, Mr. Cabrera operated his own consulting
company, Cabrera Vazquez y Asociados.

MARCO FLAVIO RIGADA SOTO, GENERAL COUNSEL

      Mr. Rigada rejoined TFM in November 2002. Mr. Rigada has 12 years of legal
experience having served in various positions in Mexico, both in the public and
private sectors. He rendered his services at the Ministry of Transportation,
Goodrich Riquelme and Associates, a corporate law firm, and TFM. Mr. Rigada was
also Head of Negotiations and Litigation of the Mexican Mission to the World
Trade Organization in Geneva, Switzerland, dealing with the areas of services,
foreign investment and e-commerce, among others.

JOSE JORGE MASVIDAL FLORES, DIRECTOR OF INFORMATION TECHNOLOGY

      Mr. Masvidal joined TFM in March 2002. Mr. Masvidal's experience includes
three years in a venture capital firm focused on technology in which he served
as Managing Director for Mexico. Prior to working in venture capital, Mr.
Masvidal spent nine years at McKinsey where he was a principal in the Mexico
City office and his focus was on technology, telecommunications, energy and
several industrial sectors. Mr. Masvidal has significant experience in strategy,
information technology, logistics, optimization, and manufacturing.

GUILLERMO GUTIERREZ MURO, INTERNAL AUDITOR DIRECTOR

      Mr. Gutierrez joined us in February 1998. Mr. Gutierrez has over 38 years
of experience in finance, having served in various positions for the IBM
Corporation for 17 years. Mr. Gutierrez 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.

ENRIQUE ALVAREZ DE LA BORBOLLA, CUSTOMER SERVICES DIRECTOR

      Mr. Alvarez joined us in May 1997. He has 20 years of experience in
customer service in the transportation industry. Prior to joining us, he worked
for Mexico's federal Airports Administration, Continental Airlines Co., and
Mexicana de Aviacion, S.A., as director for customer service, quality assurance,
continuous improvement processes and service design.

FRANK P. HERNANDEZ, VICE PRESIDENT -- OPERATIONS SUPPORT

      Mr. Hernandez joined us in April 1997. Mr. Hernandez has over 30 years of
experience in the railroad industry. Prior to joining us, he worked for BNSF,
holding a number of high level management positions in operations. Mr. Hernandez
also serves as our designated technical expert and represents us before various
Mexican regulatory agencies, as well as FRA and AAR technical committees in the
U.S.

                                      -67-
<PAGE>

CESAR POLACK BELAUNDE, CHIEF ENGINEER

      Mr. Polack joined us in April 2003. 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.

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.

LEON ORTIZ, TREASURER

      Mr. Ortiz joined us in August 1996 as our Financial Director and
Treasurer. Prior to joining us, Mr. Ortiz was with Grupo TMM for five years,
serving as its Tax Manager in Mexico and as Financial Director based in Germany.

FRANCISCO J. FERNANDEZ GALEAZZI, PROCUREMENT DIRECTOR

      Mr. Fernandez joined us in March 2004. Mr. Fernandez has over 18 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 Norteamerica,
where he was Procurement and Marketing Director.

FEDERICO DIAZ PAGE, VICE PRESIDENT -- PLANNING AND SERVICE DESIGN

      Mr. Diaz joined us in July 1997. Mr. Diaz 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.

ERNESTO G. FERNANDEZ, CHIEF MECHANICAL OFFICER

      Mr. Fernandez joined us in September 1999. In 1980, he joined Tiger
Leasing Group (now known as Grupo Quadrum), serving as Executive Vice President
of the Rail Car Division of that corporation in Mexico City. In 1993, Mr.
Fernandez joined Grupo FYL, S.A. de C.V. ("Grupo FYL"), which provides support
services to the Mexican rail industry. From 1996 until joining us, Mr. Fernandez
served as President of Grupo FYL's Progress Rail Subsidiaries in Mexico.

JACOBO JACOME, CHIEF TRANSPORTATION OFFICER

      Mr. Jacome joined us in February 1998 as Operations Manager. He has
occupied several positions within TFM. Mr. Jacome was promoted to Chief
Transportation Officer in September 2003. He has over 30 years of experience in
the railroad industry, having worked in various positions at Ferrocarriles
Nacionales de Mexico, S.A. de C.V. from 1974 to 1998.

JORGE MANUEL MARQUEZ ABREU, PLANNING AND MARKETING DIRECTOR

      Mr. Marquez joined us in May 2002. Prior to joining us Mr. Marquez was
Director of Operations of Grupo Telefonica in Mexico for two years, where he
headed the initiative for logistics and transportation technology tools. Prior
to working at Grupo Telefonica, Mr. Marquez was Deputy Director of Operative
Evaluation at Grupo TMM for four years.

                                      -68-

<PAGE>

CARLOS IGNACIO PORRAGAS GONZALEZ, VICE PRESIDENT -- SALES

      Mr. Porragas joined us in July 2001. 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.

GUILLERMO MAAFS, REVENUE MANAGEMENT DIRECTOR

      Mr. Maafs joined us in May 2002. Before joining us, he worked for five
years in various management positions with Grupo TMM and Grupo Servia. Mr. Maafs
has 13 years of experience in the transportation industry, including serving in
management positions with the airline Mexicana de Aviacion.

DAN BEERS, VICE PRESIDENT -- INTERMODAL AND AUTOMOTIVE

      Mr. Beers joined us in 1997. Prior to joining us, Mr. Beers served two
years as Vice President for Marketing and Sales of the Texas Mexican Railway
Company. Prior to holding that position, he served as Vice President of
International and Domestic Intermodal Sales for the Southern Pacific Railroad.

JAMES KNIESTEDT, VICE PRESIDENT -- SECURITY AND RAILROAD POLICE

      Mr. Kniestedt joined us in September 2002. Mr. Kniestedt has more than 17
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.

B.    COMPENSATION

      For the year ended December 31, 2003, the aggregate compensation TFM and
Grupo TFM paid to their directors, alternate directors and executive officers
for services in all capacities was approximately $4.8 million.

      We have established an annual bonus compensation program for our top
management, based on the performance results of TFM and the contribution of each
individual participant. The aggregate compensation disclosed above for 2003
includes all bonuses paid under the program in 2003.

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, 2002 and 2003, we had accrued
$0.78 million and $0.85 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 Item 6A, "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

      Neither TFM nor Grupo TFM has a formal audit committee. Guillermo
Gutierrez Muro, the Internal Audit Director of each of TFM and Grupo TFM,
reports auditing matters directly to each of TFM's and Grupo TFM's board of
directors, which is deemed as each company's respective audit committee for
purposes of the Sarbanes-Oxley Act and related regulations.

                                      -69-

<PAGE>

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 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 3,346 at the end of 1999. In 2000, the number of our full-time employees
increased to 3,613 due to the growth of our traffic volumes. In 2001, we reduced
the number of our full-time employees to 3,568. At the end of 2002, the number
of our full-time employees increased to 3,371. As of December 31, 2003, we had
3,392 full-time employees. 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.

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

      The following table sets forth information with respect to the ownership
of TFM's Series A Shares, without par value, and TFM's Series B Shares, without
par value. 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 the capital of TFM, Class II Series A Shares
and Class II Series B Shares must represent 29.0% of the capital of TFM, and
Class III Series A Shares and Class III Series B Shares must represent 20.0% of
the capital of TFM.

<TABLE>
<CAPTION>
                                            SERIES A SHARES              SERIES B SHARES                    TOTAL
                                        -------------------------    -------------------------    -------------------------
            SHAREHOLDER                    SHARES         PERCENT        SHARES        PERCENT        SHARES        PERCENT
            -----------                    ------         -------        ------        -------        ------        -------
<S>                                     <C>               <C>        <C>               <C>        <C>               <C>
Grupo 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       29.0
Mexican government (Class III)......    141,166,725         20.0     135,630,776         20.0       276,797,501       20.0
                                        -----------        -----     -----------        -----     -------------      -----
   Total............................    705,833,627        100.0%    678,153,878        100.0%    1,383,987,505      100.0%
                                        ===========        =====     ===========        =====     =============      =====
</TABLE>

                                      -70-

<PAGE>

      Pursuant to the Put Agreements, the Mexican government has the right,
subject to certain conditions, to require Grupo TFM to purchase the Mexican
government's interest in TFM 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. See Item 3D, "Risk Factors -- The Mexican government has the right,
subject to certain conditions, to require Grupo TFM to purchase the Mexican
government's 20% interest in TFM" and Item 8A, "Financial Information --
Consolidated Statements and Other Financial Information -- Legal Proceedings --
Mexican Government's Put on its Equity Interest in TFM."

      The Series A Shares can be held only by individuals or companies of
Mexican nationality. The Series B Shares can be held by individuals or companies
of Mexican and non-Mexican nationality.

      The Class I and Class II Series A Shares and the Class I and Class II
Series B Shares are entitled to elect seven of TFM's eight 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 eight 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;

      -     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.

                                      -71-

<PAGE>

GRUPO TFM

      The following table sets forth information with respect to the ownership
of Grupo TFM's Series A Shares, without par value, Grupo TFM's Series B Shares,
without par value, and Grupo TFM's Series L-2 Shares, without par value:

<TABLE>
<CAPTION>
                                       SERIES A SHARES      SERIES B SHARES      SERIES L-2 SHARES            TOTAL
                                       ---------------      ---------------      -----------------            -----
         SHAREHOLDER                  SHARES    PERCENT   SHARES     PERCENT     SHARES     PERCENT      SHARES    PERCENT
         -----------                  ------    -------   ------     -------     ------     -------      ------    -------
<S>                                 <C>         <C>      <C>         <C>         <C>        <C>         <C>        <C>
Grupo TMM, S.A. de C.V. 1) ...      3,868,401    100.0%          -        -             -        -      3,868,401    38.5%

Kansas City Southern(2) ......              -        -   3,716,699    100.0%            -        -      3,716,699    36.9

TFM, S.A. de C.V.(3)..........              -        -           -        -     2,478,470    100.0%     2,478,470    24.6
                                    ---------    -----   ---------    -----     ---------    -----     ----------   -----
  Total.......................      3,868,401    100.0%  3,716,699    100.0%    2,478,470    100.0%    10,063,570   100.0%
                                    =========    =====   =========    =====     =========    =====     ==========   =====
</TABLE>

(1) Grupo TMM holds its interest indirectly through a subsidiary, TMM
    Multimodal. The figure includes 83,886 shares purchased from Grupo Servia at
    the end of 2000.

(2) KCS holds its interest indirectly through a subsidiary, Caymex, which in
    turn holds its interest indirectly through its subsidiary, NAFTA Rail, S.A.
    de C.V.

(3) TFM acquired the Mexican government's 24.6% equity interest on July 29,
    2002.

      Grupo Servia sold its 0.8% equity interest in Grupo TFM to TMM Multimodal
at the end of 2000. As a result, Grupo TMM indirectly owns 51.0% of Grupo TFM's
unrestricted voting shares, giving Grupo TMM voting control of Grupo TFM.

      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. See Item 3D, "Risk Factors -- Our
strategic partners, Grupo TMM and KCS, are involved in a dispute and we are
involved in other legal proceedings with KCS" and Item 8A, "Financial
Information -- Consolidated Statements and Other Financial Information -- Legal
Proceedings -- Dispute between Grupo TMM and KCS."

      Beginning on December 31, 2000, Grupo TFM's financial statements were
consolidated with the financial statements of Grupo TMM and its consolidated
subsidiaries. Grupo TMM is controlled, directly and indirectly, by members of
the Serrano Segovia family who currently own approximately 46.5% of Grupo TMM's
Series A Shares.

      The Grupo TFM Series A Shares are entitled to elect four of Grupo TFM's
eight directors, and their corresponding alternate directors. The Grupo TFM
Series A Shares can be held only by individuals or companies of Mexican
nationality or companies which are majority-owned by individuals or companies of
Mexican nationality.

      The Grupo TFM Series B Shares are entitled to elect three of Grupo TFM's
eight directors, and their corresponding alternate directors. The Grupo TFM
Series B Shares, as well as any other series of shares (other than the Series A
shares) issued at a Grupo TFM shareholders meeting, can be held by individuals
or companies of Mexican or non-Mexican nationality, except for foreign
governments or states.

      Grupo TFM Series L-2 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-2 Shares shall be limited to the following
matters:

      -     extension of the corporate life of Grupo TFM;

                                      -72-

<PAGE>

      -     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-2 shares are registered.

Except as described above, holders of Grupo TFM's Series L-2 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

GRUPO TMM MANAGEMENT SERVICES AGREEMENT

      TFM and Grupo TMM entered into a management services agreement pursuant to
which Grupo TMM agreed to provide certain consulting and management services to
TFM. Pursuant to this agreement, Grupo TMM agreed to make available to TFM
executive managers familiar with Mexican and international transportation
practices and methods to help develop management, administrative, accounting and
governmental relations policies, procedures and strategies. TFM agreed to
reimburse Grupo TMM quarterly in arrears for the costs of its agents, employees
and out-of-pocket expenses incurred in connection with the provision of such
services. The management services agreement was for an initial term of 12 months
commencing May 1997 and was renewable for additional one-year periods.

      On April 30, 2002, TFM and Grupo TMM entered into an amendment to the
management services agreement that provides for automatic renewal of the
agreement and compensates Grupo TMM for its services under the agreement. The
amendment states that Grupo TMM is entitled to receive (1) $2,500,000 paid in
nine equal monthly installments beginning in April 2002, as compensation for
services rendered between January 1, 1999 and December 31, 2000; (2) an
additional $2,500,000 in a lump sum payment on or before January 2, 2003 as
compensation for services rendered from January 1, 2001 through December 31,
2002; and (3) quarterly service payments, payable in arrears, for the period
beginning January 1, 2003 at an annual rate of $1,250,000. The management
services agreement is terminable by either party upon 60 days written notice.
See Note 7 to our financial statements.

KANSAS CITY SOUTHERN TRANSPORTATION COMPANY MANAGEMENT SERVICES AGREEMENT

      TFM and KCS Transportation Company entered into a management services
agreement pursuant to which KCS Transportation Company agreed to provide certain
rail consulting and management services to TFM. Pursuant to this agreement, KCS
Transportation Company agreed to make available to TFM executive rail managers
familiar with U.S. railroad practices and methods, including its President and
Chief Executive Officer, an operations manager, a marketing manager, a plant
maintenance manager and a terminal operations manager, to assist in the
development of operating and marketing practices and strategies. TFM agreed to
reimburse KCS Transportation Company quarterly in arrears for the costs of its
agents and employees and out-of-pocket expenses incurred in connection with the
provision of such services. The management services agreement was for an initial
term of 12 months commencing May 1997 and was renewable for additional one-year
periods.

                                      -73-

<PAGE>

      On April 30, 2002, TFM and KCS, as successor in interest through its
merger with KCS Transportation Company, entered into an amendment to the
management services agreement that provides for automatic renewal of the
agreement and compensates KCS for its services under the agreement. The
amendment states that KCS and is entitled to receive (1) $2,500,000 paid in nine
equal monthly installments beginning in April 2002, as compensation for services
rendered between January 1, 1999 and December 31, 2000; (2) an additional
$2,500,000 in a lump sum payment on or before January 2, 2003 as compensation
for services rendered from January 1, 2001 through December 31, 2002; and (3)
quarterly service payments, payable in arrears, for the period beginning January
1, 2003 at an annual rate of $1,250,000. The management services agreement is
terminable by either party upon 60 days written notice. See Note 7 to our
financial statements.

ASSOCIATION IN PARTICIPATION SHARING AGREEMENT

      On June 23, 1997, Grupo TFM and TFM entered into an agreement under which
TFM has the right to participate in the profits (or losses, as the case may be)
that Grupo TFM derives from a sale of 469 million shares of TFM. Grupo TFM
entered into this agreement in consideration for TFM's funding approximately
$593.4 million of the acquisition price paid to the Mexican government by Grupo
TFM for the TFM shares. The sale of the shares covered by the agreement is
required to be made by June 23, 2012. The proceeds obtained from the sale of the
TFM shares are to be applied as follows:

      -     first, to repay TFM the amount of approximately $593.4 million;

      -     second, to the payment of any taxes which may result from the sale
            of the TFM shares;

      -     third, of the remaining funds, 99.0% to TFM and 1.0% to Grupo TFM,
            until certain scheduled amounts are received by each of TFM and
            Grupo TFM; and

      -     thereafter, of the remaining funds, 1.0% to TFM and 99.0% to Grupo
            TFM.

      TFM believes that the terms of each of the above agreements are as
favorable to it as those that could have been obtained from an unrelated third
party. See Note 7 to our financial statements.

MEXRAIL STOCK PURCHASE AGREEMENT, OMNIBUS AGREEMENT AND SALE AND REPURCHASE OF
EQUITY INTEREST IN MEXRAIL

      In December 2001, disputes arose between Grupo TMM and KCS resulting from
a dividend declaration by Grupo TFM and a lease transaction between TFM and
Mexrail involving the international rail bridge at Laredo, Texas. Preserving
their respective interpretations of the operative agreements in connection with
their dispute, Grupo TMM and KCS reached an agreement to resolve such dispute,
pursuant to which on February 27, 2002, among other things, Grupo TMM and KCS
entered into an agreement with us to sell their 51.0% and 49.0% equity interests
in Mexrail to us for $32.6 million and $31.4 million, respectively. On March 8,
2002, we entered into an omnibus agreement with Grupo TMM and KCS setting forth
certain terms regarding resolution of their dispute and the management and
operation of Mexrail and the Texas Mexican Railway Company. The sale of Mexrail
to us was completed on March 27, 2002.

      In May 2003, TFM sold a 51.0% interest in Mexrail and its wholly-owned
subsidiary, the Texas Mexican Railway Company, 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. 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 U.S. Surface Transportation
Board 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 owns 100% of Mexrail.

                                      -74-

<PAGE>

COMMERCIAL TRANSACTIONS

      We also enter into commercial transactions with our related parties for
the provision of certain services. Such transactions are carried out on an
arm's-length basis and conducted on the same terms that apply to third parties.
See Note 7 to our financial statements.

INTERCOMPANY TRANSACTIONS

      TFM and Grupo TFM have internal arrangements under which each company may
receive or transfer money in accordance with their cash requirements. As of
December 31, 2003, TFM had a non-interest bearing receivable due from Grupo TFM
of $67.7 million, mainly due to the funding that TFM provided to Grupo TFM to
pay a portion of the purchase price of its TFM shares. See Note 7 to our
financial statements.

C.    INTERESTS OF EXPERTS AND COUNSEL

      Not applicable.

ITEM  8. FINANCIAL INFORMATION

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

      See Item 18, "Financial Statements."

LEGAL PROCEEDINGS

      DISPUTE BETWEEN GRUPO TMM AND 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. On August 18, 2003, Grupo TMM's shareholders voted to reject the
Acquisition Agreement. In addition, Grupo TMM's board of directors met on August
22, 2003 and voted to terminate the Acquisition Agreement. Grupo TMM sent a
notice of termination of the Acquisition Agreement to KCS on that day. On August
29, 2003, KCS sent a notice of dispute to Grupo TMM and filed a complaint in the
Delaware Chancery Court, requesting a preliminary injunction to enjoin Grupo TMM
from violating the terms of the Acquisition Agreement pending a subsequent
decision by a panel of arbitrators regarding whether the Acquisition Agreement
was still in force. KCS simultaneously filed a suit against Grupo TFM and TFM
(and their directors appointed by Grupo TMM) in Mexico, alleging that Grupo TFM
had taken certain actions without fulfilling certain procedural requirements
regarding notice of a board of directors meeting. Grupo TFM and TFM responded to
the action by asserting that Grupo TFM and TFM had properly addressed all
procedural requirements to legally hold meetings of the board of directors.

      On October 22, 2003, the Delaware Chancery Court granted KCS's request for
an injunction, maintaining the status quo and issued an order requiring Grupo
TMM and KCS not to violate any of the terms of the Acquisition Agreement pending
arbitration of the issues. On October 31, 2003, KCS filed a demand for
arbitration before the American Arbitration Association, pursuant to the
Acquisition Agreement's dispute resolution provisions seeking, among other
things, a declaration that the Acquisition Agreement was wrongfully terminated
and that Grupo TMM breached its obligations thereunder. KCS is seeking specific
performance of Grupo TMM's obligations under the Acquisition Agreement or, in
the alternative, monetary damages in the amount of at least $500 million.

      On November 18, 2003, Grupo TMM filed a response denying KCS's allegations
and asserting counterclaims requesting, among other things, declaratory relief
in the form of a finding that Grupo TMM properly terminated the Acquisition
Agreement and awarding Grupo TMM damages for KCS's breach of the Acquisition
Agreement.

      Pursuant to the Acquisition Agreement's dispute resolution provisions,
Grupo TMM and KCS each selected one arbitrator, and those two arbitrators
jointly selected a third arbitrator. On December 8, 2003, Grupo TMM and KCS
participated in a preliminary hearing with the arbitrators during which the
arbitrators deliberated whether the issue of the Acquisition Agreement's
continued effectiveness should be bifurcated from the other issues in the case.
On December 22, 2003, the arbitration panel bifurcated the issue of whether
Grupo TMM had properly terminated

                                      -75-

<PAGE>

the Acquisition Agreement from the other disputed issues between the parties and
scheduled a hearing on that issue. On February 2, 3 and 4, 2004, a hearing was
held in New York on the issue of whether Grupo TMM's termination was proper.
Grupo TMM maintained that Grupo TMM properly terminated the Acquisition
Agreement while KCS sought a declaration that the Acquisition Agreement was
wrongfully terminated.

      In March 2004, the arbitration panel issued a ruling solely on the issue
of the termination of the Acquisition Agreement by Grupo TMM based on the
failure of the stockholders to approve the sale of Grupo TFM at Grupo TMM's
stockholder meeting held in August 2003. The arbitration panel ruled that the
termination on this basis was not effective and that the Acquisition Agreement
remained in effect and binding on the parties unless otherwise terminated in
accordance with its terms or by law. In reaching its conclusion, the arbitration
panel specifically declined to rule on the issue of whether approval by Grupo
TMM's shareholders is a "condition" under the Acquisition Agreement. On April 4,
2004, the arbitration panel issued an order, which was stipulated to by KCS and
Grupo TMM, providing that the parties agreed "not to request a scheduling order
for a further hearing in the arbitration at this time" and that "each party
reserves the right to request a scheduling order for a further hearing at any
time." In a stipulation signed by Grupo TMM and KCS and accepted by the
arbitration panel, the two companies have agreed to discharge in good faith
all of the obligations of the Acquisition Agreement.

      We cannot predict the ultimate outcome of any further arbitration on the
remaining disputed issues. If KCS were to be awarded substantial damages in any
such proceeding, we do not believe that it would have any material adverse
effect on our business. See Note 11 to Grupo TFM's financial statements for
further discussion regarding the dispute between Grupo TMM and KCS.

      VAT AWARD

      On September 25, 2002, the Mexican Magistrates Court of the First District
(the "Federal Court") issued a judgment in favor of TFM on a VAT claim, which
has been pending in the Mexican courts since 1997. The claim arose out of the
Mexican Treasury's delivery of a VAT credit certificate to a Mexican
governmental agency rather than to TFM. By a unanimous decision, the Federal
Court vacated a prior judgment of the Federal Tribunal of Fiscal and
Administrative Justice (the "Fiscal Court") and remanded the case to the Fiscal
Court with specific instructions to enter a new decision consistent with the
guidance provided in the Federal Court's ruling. The Federal Court's ruling
required the fiscal authorities to issue the VAT credit certificate in the name
of TFM. On December 6, 2002, the upper chamber of the Fiscal Court again ruled
against TFM, denying TFM the right to receive the VAT credit certificate. On
January 8, 2003, TFM was officially notified of the new judgment of the Fiscal
Court and, on January 29, 2003, TFM filed an appeal.

      On June 11, 2003 the Federal Court issued a judgment in favor of TFM
against the ruling of the Fiscal Court. On July 9, 2003, TFM was formally
notified by a three-judge panel of the Federal Court of its June 11, 2003
judgment, which granted TFM constitutional protection (amparo) against the
ruling of the Fiscal Court issued on December 6, 2002, which had denied TFM the
right to receive the VAT refund certificate. The Federal Court found that the
VAT refund certificate had not been delivered to TFM, and confirmed the Fiscal
Court's determination that TFM has the right to receive the VAT refund
certificate. The Federal Court's ruling held that the Treasury's decision to not
deliver the VAT refund certificate to TFM violated the law and instructed
Treasury to issue the VAT refund certificate to TFM on the terms established by
Article 22 of Mexico's Federal Fiscal Code (Codigo Fiscal de la Federacion) in
effect at that time. As a result of this ruling, the case was remanded to the
Fiscal Court.

      In a public session held on August 13, 2003, the Fiscal Court issued a
resolution regarding TFM's 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 TFM has proved its case, and that a
"ficta denial" occurred, declaring such denial null and void as ordered by the
Federal Court. On August 25, 2003, TFM was formally notified by the Fiscal Court
of its resolution regarding TFM's 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 Certificate to TFM under the terms
established by Article 22 of Mexico's Federal Fiscal Code in effect in 1997. On
October 3, 2003 the Mexican Tax Attorney of the Federal Government (Procuraduria
Fiscal de la Federacion) 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 TFM a Special VAT
Certificate in the historical claim amount of approximately Ps. 2.1 billion, or
approximately $195 million (based on the applicable exchange

                                      -76-

<PAGE>

rate as of that date). The historical claim amount does not include additional
amounts which TFM is seeking to account for the effects of inflation and
interest accrued on the original claim amount.

      On January 20, 2004, the Mexican Fiscal Administration Service ("Servicio
de Administracion Tributaria"' or "SAT") issued a provisional attachment on the
Special VAT Certificate, stating that the documents that support the acquisition
of assets according to the privatization, do not comply with applicable tax
requirements. TFM has publicly stated that it will oppose the SAT's action
through all possible legal means, and will continue its attempts to reclaim the
additional amounts it seeks for inflation and accrued interest on the original
claim amount.

      TFM subsequently presented a complaint before the upper chamber of the
Fiscal Court. TFM has not yet received an official decision concerning this
complaint, but is aware that the Fiscal Court voted against TFM's request to
compel the government to reissue its Special Certificate to include inflation
and accrued interest. TFM intends to present to the Magistrates Federal Court,
which is the highest authority on legal matters in Mexico, all proper petitions
and motions in support of its rights consistent with rulings issued by the
Magistrates Federal Court in the past year. We believe that TFM's claim to have
the VAT certificate reissued to include interest and inflation accruals will be
upheld in Mexico's legal system.

      MEXICAN GOVERNMENT'S PUT OPTION ON ITS EQUITY INTEREST IN TFM

      In connection with the privatization of TFM and pursuant to the Put
Agreements, the Mexican government retained a 20% equity interest in TFM. The
intention was to sell these TFM shares through a public offering, at such time
as the Mexican government considered it appropriate and with approval of the
CNBV, with the objective of strengthening the market for public investments in
Mexico and encouraging additional investors to invest in the capital stock of
TFM. Additionally, TFM's bid contained the following condition: "The franchise
purchasers will be obligated to acquire the equity portion that cannot be placed
in the Mexican Stock Exchange ("Bolsa Mexicana de Valores" or "BMV"), at the
initial offering price plus respective interest." In October 2003, Grupo TFM
requested that a federal judge in Mexico provide an interpretation of the Put
Agreements and the Mexican government's obligations thereunder.

      We believe that under the Put Agreements, the Mexican government agreed to
comply with the following process in order to sell its equity interest in TFM:
(i) register the TFM shares with the BMV; (ii) receive the approval of the CNBV
to exercise the put; (iii) request that TFM provide all information necessary to
place the Mexican government's equity stake in the equity markets; and (iv)
place the number of TFM shares it is able to in the equity markets once all
necessary approvals are granted. When the above steps are completed, the Mexican
government would notify Grupo TFM of the number of TFM shares that could not be
placed in the equity markets and would request that Grupo TFM acquire those
shares at the minimum stipulated price.

      We do not believe that any of the steps described above have been carried
out. Furthermore, we do not believe that the real value of the shares of TFM
owned by the Mexican government can be determined at this time because TFM has
not received the VAT refund as ordered by the Mexican Fiscal Court on August 13,
2003.

      Notwithstanding the foregoing, the price of the Mexican government's
interest, as indexed for Mexican inflation, as of December 31, 2003 was
approximately 1,570.3 million UDIs (representing Ps. 5,264 million, or
approximately $469.4 million). The estimated fair market value of the Mexican
government's interest as of December 31, 2003 was $475.6 million (the fair
market value represents the price that a third party would be willing to pay).

      Nevertheless, and notwithstanding the judicial proceeding initiated by
Grupo TFM, on October 31, 2003, the Ministry of Transportation requested that
Grupo TFM confirm whether it intends to purchase the TFM shares subject to the
put rights of the Mexican government. Grupo TFM responded that the purchase of
the Mexican government's shares of TFM was the subject of an ongoing judicial
proceeding that had yet to be resolved. 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 Put Agreements 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.

                                      -77-
<PAGE>

      On December 16, 2003, the Fourth Administrative District Court issued an
injunction ordering Grupo TFM, the Ministry of Transportation and the Treasury
to maintain the status quo pending judicial resolution of the dispute. In order
for the injunction to be effective, the Fourth Administrative District Court
required that Grupo TFM post a bond for the equivalent of six months of interest
on the exercise price of the Mexican government's put option to be calculated at
an interest rate of 6% per annum (approximately Ps. 160,161,000 or approximately
$14.3 million at December 31, 2003). However, as no further action has been
taken by the Mexican government to enforce its rights in connection with the
put, Grupo TFM's obligation to post such a bond is considered discretionary
under Mexican law. Consequently, Grupo TFM has elected, for the time being, not
to post the bond so as not to incur unnecessary expense. Grupo TFM has the right
to post the bond at any time while the amparo proceeding is pending.
Additionally, Grupo TFM requested and obtained an injunction which prevents the
Mexican government from exercising its put option. The Mexican government's
ability to exercise its put option has been suspended until legal proceedings
related to these matters are resolved. Grupo TFM will vigorously defend its view
that the Mexican government has not fulfilled the prescribed steps required to
exercise its put rights. Although Grupo TFM believes that it will prevail in
legal proceedings related to these matters, there can be no assurance that it
will prevail.

      Grupo TFM acknowledges its commitment to acquire the TFM shares that the
Mexican government holds and has informed the Mexican government of its desire
to comply with the steps agreed to in the Put Agreements once the aforementioned
formalities and conditions have been fulfilled.

      DISPUTES WITH FERROMEX

      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. Therefore, in accordance with our rights under the Mexican
railroad services law and regulations, in February 2001, we initiated an
administrative proceeding requesting a determination of such rates by the
Ministry of Transportation.

      In connection with such administrative proceeding, on March 13, 2002 and
August 5, 2002, respectively, the Ministry of Transportation issued two rulings
in response to our request. One such ruling established rates to be charged for
short and long-distance trackage rights and the other ruling established rates
to be charged for interline services and haulage rights, respectively. The rates
with respect to such rulings were based on the criteria set forth in the Mexican
railroad services law and regulations. TFM and Ferromex have appealed both
rulings issued by the Ministry of Transportation before the Mexican Federal
Courts. TFM and Ferromex also requested and obtained a suspension of the
effectiveness of the rulings pending resolution of this appeal.

      In September 2001, Ferromex filed a legal claim against us relating to the
payments that we and Ferromex are required to make to each other for interline
services and trackage and haulage rights. We believe that this legal claim is
without merit and that the payments for interline services and trackage and
haulage rights owed to us by Ferromex exceed the amount of payments that
Ferromex claims we owe to Ferromex for such services and rights. Accordingly, we
believe that the outcome of this legal claim will not have a material adverse
effect on our the financial condition. On September 25, 2002, the Third Civil
Court of Mexico City rendered a judgment in our favor. Ferromex subsequently
appealed the judgment and we prevailed on the appeal. Ferromex then proceeded to
the "amparo" proceedings before the Federal Courts of Mexico, and obtained a
resolution ordering the higher local court to review the case again exclusively
with respect to the interline services part of the original claim. The higher
local issued a new ruling which both Ferromex and we contested in a new "amparo"
proceeding at the Federal Court. Both parties obtained a favorable resolution.
On March 22, 2004, the higher local court, in full compliance with the Federal
Court resolution, issued a new resolution confirming the ruling issued on
September 25, 2002 by the Third Civil Court of Mexico City in favor of us. On
April 14, 2004, Ferromex filed a new legal claim ("incidente de repeticion de
acto reclamado") before the Federal Courts, which we are currently vigorously
contesting. While we believe we are likely to succeed in the latest action
before the Federal Courts, we cannot assure you that we will ultimately prevail.

      In connection with the Ferromex claim, Ferromex temporarily prevented us
from using certain short trackage rights which we have over a portion of the
route running from Celaya to Silao, which is the site of a General Motors plant
from where we transport finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving us
access, and in October 2001, we filed a counterclaim against Ferromex relating
to these actions. We have also initiated several judicial and administrative
proceedings at

                                      -78-

<PAGE>

the Ministry of Transportation to seek the imposition of sanctions on Ferromex
for violations to the trackage rights in the route from Celaya to Silao, which
as of to date have not been resolved.

      We have also initiated several administrative and judicial proceedings
(including criminal actions) against Ferromex at the Ministry of Transportation
and the relevant Federal Courts, in connection with its trackage rights in
Altamira, Topo Grande-Chipinque, Guadalajara, Arellano-Chicalote, Ramos
Arizpe-Encantada, and Pedro C. Morales-Cerro de la Silla. We cannot predict
whether we will ultimately prevail in such proceedings.

      In March 2002, the Ministry of Transportation issued its ruling in
response to our request, establishing a rate to be charged for trackage rights
using the criteria set forth in the Mexican railroad services law and
regulations. We are appealing the ruling and requesting a suspension of the
effectiveness of the ruling pending resolution of its appeal. We cannot predict
whether we will ultimately prevail. We believe that even if the rates
established in the ruling goes into effect and we and Ferromex begin using the
long-distance trackage rights over each other's rail line, this will not have a
material adverse effect on our results of operations. A separate ruling was
issued confirming our right to use the Celaya-Silao stretch of Ferromex track,
which was appealed by Ferromex before Federal Courts obtaining the suspension of
such ruling. We requested and obtained an "amparo" proceeding against such
suspension and Ferromex appealed the resolution granting the "amparo" to us. On
January 9, 2004, the higher Federal Court confirmed the "amparo" resolution
obtained by us, thereby confirming our right to use the Celaya-Silao stretch of
Ferromex track. We cannot predict whether we will ultimately prevail in the main
procedure regarding our right to use the Celaya-Silao stretch of Ferromex track.

      We and Ferromex have both initiated several judicial and administrative
proceedings in connection with the amounts payable to each other for interline
services, haulage and trackage rights. Those procedures continue under
litigation and are pending final resolution.

      OTHER LEGAL PROCEEDINGS

      KCS and certain of its representatives have initiated judicial proceedings
in Mexico seeking the nullification of several Grupo TFM and TFM board of
directors meetings which have taken place since August 25, 2003. KCS has also
initiated another proceeding seeking the nullification of Grupo TFM's November
24, 2003 shareholders' meeting. Finally, Nafta Rail S.A. de C.V. ("Nafta Rail"),
an affiliate of KCS, initiated proceedings against us, TMM Multimodal, Grupo
TFM, The Bank of New York, as trustee of the Logistics Trust-2000-A, Citibank,
N.A., and Maple Trade Finance Corp., among others, seeking the court's
declaration of the nullity of the option agreement entered into by TMM
Multimodal and The Bank of New York, as trustee of the Logistics Trust-2000-A.
The defendants have requested that Nafta Rail's claims must be resolved in
arbitration and The Bank of New York, Citibank, N.A., and Maple Trade Finance
Corp., are in the process of being served. We believe that KCS's claims in this
connection are without merit. At present, we have responded to all claims
concerning which we have been served. Although we have no assurance regarding
the outcome of the proceedings resulting from these claims, we believe that none
of the underlying claims initiated by KCS in Mexico, if ultimately determined in
favor of KCS, will have a material adverse effect on Grupo TFM or TFM.

      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.

B.    SIGNIFICANT CHANGES

      Not applicable.

ITEM 9. THE OFFER AND LISTING

A.    OFFER AND LISTING DETAILS

      Not applicable.

                                      -79-

<PAGE>

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 anonima, denominated
Ferrocarril del Noreste, S.A. de C.V., as evidenced by public deed number
50,413, dated November 22, 1996, granted before Miguel 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 Limon Diaz, 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.

                                      -80-

<PAGE>

      BOARD OF DIRECTORS

      The by-laws provide that the board of directors of TFM shall consist of
eight directors and their corresponding alternates. Class I and Class II
shareholders elect seven 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.

      Pursuant to Article 26 of the by-laws, 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.

      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 seven of TFM's eight 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 eight 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)

                                      -81-

<PAGE>

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.

      SHAREHOLDER 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 (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.

      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. 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.

                                      -82-

<PAGE>

      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 Transportacion Ferroviaria Mexicana,
S. de R.L. de C.V. as evidenced by public deed number 32,732, dated July 12,
1996, granted before Miguel Limon Diaz, 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 Limon Diaz, 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 anonima, and changed
its name to Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V., among other
things.

      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 seven directors and their
corresponding alternates. Series A shareholders elect four directors and their
respective alternates. Series B shareholders elect three directors and their
respective alternates.

      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, and resolutions require adoption by a majority of directors
present. The president of the board of directors has the deciding vote whenever
the vote is tied. Holders of Series A Shares have the right to appoint the
president of the board.

      CAPITAL STOCK

      Grupo TFM has three classes of outstanding capital stock: Series A Shares,
Series B Shares and Series L-2 Shares. All of the shares of the capital stock of
Grupo TFM currently outstanding are fully paid and non-assessable. Series L-2
Shares may represent up to 25.0% of the total amount of the capital stock of
Grupo TFM.

      Series A Shares and Series B Shares are common, full-voting and nominative
shares of the capital stock, without par value. Series L-2 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

                                      -83-

<PAGE>

seven directors and their corresponding alternates and to cast one vote per
share at each shareholders' meeting. Series B are entitled to elect three of
Grupo TFM's seven directors and their corresponding alternates and to cast one
vote per share at each shareholders' meeting.

      Series L-2 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-2 Shares afford the right to vote, together with Series A Shares,
exclusively on the 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-2
shares are registered. Except as described herein, the holders of Series L-2
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 60.0% of the shares that
have the right to attend such meetings, and the affirmative vote of the majority
present at any such meeting, in a first call, and, in a second or subsequent
call, the affirmative vote of the majority present at such meeting, irrespective
of the number of 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 a majority 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-2 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-2
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.

      SHAREHOLDER 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, TFM's fiscal year must
begin on January 1 and end on December 31 of each calendar year.

                                      -84-

<PAGE>

      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 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 Grupo TFM's corporate charter prohibit ownership of Series
A Shares by foreign investors. 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
Grupo TFM if authorized by resolution at a shareholders' meeting. Series A
Shares must at all times represent 51.0%, and Series B Shares must at all times
represent 49.0%, of the full voting shares issued and outstanding of Grupo TFM.
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 (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 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 7B, "Major Shareholders and Related Party Transactions -- Related
Party Transactions" and Item 5B, "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

      The following summary describes the principal U.S. federal income and
Mexican federal tax consequences of the acquisition, ownership and disposition
of the securities by:

      -     U.S. holders (as defined below) in the case of U.S. federal income
            tax consequences; and

                                      -85-

<PAGE>

      -     U.S. holders that are not residents of Mexico for Mexican federal
            tax purposes and that do not have a permanent establishment in
            Mexico (a "non-resident U.S. holder"), in the case of Mexican
            federal tax consequences.

      The summary with respect to U.S. federal income taxes is based on the U.S.
Internal Revenue Code, treasury regulations, including proposed regulations and
temporary regulations, promulgated under that code, rulings, official
pronouncements and judicial decisions, all as in effect on the date of this
annual report. The summary with respect to Mexican federal taxes is based on
Mexico's income tax law and regulations applicable on the date of this annual
report. This information is subject to change, possibly with retroactive effect,
and to different interpretations. This summary does not address all of the tax
consequences that may be applicable to holders of the securities.

      For purposes of this summary, a "U.S. holder" is any holder of our
securities that is, for U.S. federal income tax purposes:

      -     a citizen or resident of the U.S.;

      -     a corporation, partnership, or other entity created or organized in
            or under the laws of the U.S., or any political subdivision thereof;

      -     an estate the income of which is includible in gross income for U.S.
            federal income tax purposes regardless of source; or

      -     a trust if a court within the U.S. is able to exercise primary
            supervision over the administration of the trust and one or more
            U.S. persons have the authority to control all substantial decisions
            of the trust.

      For purposes of Mexican taxation, an individual is a resident of Mexico if
such person has established a home in Mexico. However, if the individual also
has a home outside of Mexico, such person shall be considered a resident of
Mexico if such person's "center of vital interests" is located in Mexico. A
person has a "center of vital interests" in Mexico, if, for example, more than
50% of such person's total income during such year is Mexican source income or
such person's principal place of business is located in Mexico. An individual of
Mexican nationality is presumed to be a resident of Mexico unless such person
can demonstrate otherwise. A legal entity is a resident of Mexico if it has been
incorporated under the laws of Mexico, or if it maintains the principal
administration of its business in or the effective location of its management is
in Mexico. If a legal entity or an individual is deemed to have a permanent
establishment in Mexico for Mexican federal tax purposes, all income
attributable to such permanent establishment will be subject to Mexican federal
taxes, in accordance with applicable laws. A non-resident of Mexico is any
individual or legal entity that is not a resident of Mexico for Mexican federal
tax purposes.

      The description of the U.S. federal income and Mexican income tax laws set
forth below is based on the laws in force as of the date of this report and is
subject to any changes in applicable U.S. or Mexican tax laws. The governments
of the U.S. and Mexico ratified an income tax treaty which became effective on
January 1, 1994 and ratified various related protocols (together, the "Tax
Treaty").

      Each holder of our securities should consult his, her or its tax advisors
with respect to the tax treatment applicable to that holder.

MEXICAN TAX CONSIDERATIONS

      GENERAL

      This summary of certain Mexican tax considerations relates only to
non-resident U.S. holders of our securities.

                                      -86-

<PAGE>

      PAYMENTS OF INTEREST

      Under Mexico's income tax law, payments of interest on each of our
securities to non-resident U.S. holders (which is deemed to include any amounts
paid by us in excess of the original issue price) will be subject to Mexican
withholding tax at a rate of 4.9%, if the following requirements are met with
respect to the relevant securities:

      -     the securities are registered with the Special Section of the
            National Registry of Securities maintained by Mexico's National
            Banking and Securities Commission and evidence of the registration
            is filed with the Secretaria de Hacienda y Credito Publico (the
            Ministry of Finance and Public Credit);

      -     the securities were placed outside of Mexico through banks or
            brokerage houses in a country with which Mexico has a treaty for the
            avoidance of double taxation;

      -     we timely comply with certain information requirements established
            in the general rules issued by the Ministry of Finance and Public
            Credit; and

      -     owners of more than 10.0% of our voting stock or entities in which
            we own more than 20.0% of the voting stock do not beneficially
            receive (as determined under Mexico's income tax law) more than 5.0%
            of the aggregate interest paid on the relevant securities. Ownership
            of stock includes direct and indirect ownership, as well as
            ownership by related parties.

      We have been satisfying, and expect to continue to satisfy, the
above-mentioned requirements, and accordingly, we expect that the 4.9%
withholding tax rate will apply.

      If any of the above-mentioned requirements is not met, the Mexican
withholding tax will be 10.0% and in certain cases 33.0%.

      Under the Tax Treaty, the Mexican withholding tax rate applicable to
interest payments made to non-resident U.S. holders that are eligible for
benefits under the Tax Treaty will be limited to either:

      -     15.0%; or

      -     4.9% if:

      (i)   the securities are deemed to be regularly and substantially traded
            on a recognized securities market as defined by the Tax Treaty; or

      (ii)  the securities are held by banks, including saving and investment
            banks, and insurance institutions.

      As of the date of this annual report, the Tax Treaty is not expected to
have any material effect on the Mexican tax consequences described herein.

      Payments of interest on the securities to non-Mexican pension and
retirement funds will be exempt from Mexican withholding tax if:

      -     the fund is duly incorporated pursuant to the laws of its country of
            residence and is the effective beneficiary of the interest payment;

      -     the interest is exempt from taxes in its country of residence; and

      -     the fund is registered with the Ministry of Finance and Public
            Credit for these purposes.

      PAYMENT OF PRINCIPAL

      Under Mexico's income tax law, principal paid to a non-resident U.S.
holder of our securities is not subject to Mexican withholding tax.

                                      -87-

<PAGE>

      ADDITIONAL AMOUNTS

      Pursuant to the applicable indenture, but subject to certain exceptions
and limitations, all payments on our securities will be made free and clear of
any withholding taxes imposed by Mexico. We will furnish to the trustee under
each indenture the official receipts (or a certified copy of the official
receipts) evidencing the payment of Mexican withholding taxes by us. Copies of
such receipts will be made available to holders upon request.

      TAXATION OF CAPITAL GAINS

      The sale or other disposition of our securities by a non-resident U.S.
holder will not be subject to Mexican taxation.

      OTHER MEXICAN TAXES

      There are no Mexican estate, inheritance, succession, or gift taxes
generally applicable to the acquisition, ownership or disposition of the
securities by non-resident U.S. holders. There are no Mexican stamp, issue,
registration or similar taxes or duties payable by non-resident U.S. holders of
our securities.

U.S. FEDERAL INCOME TAX CONSIDERATIONS

      GENERAL

      The following is a summary of the principal U.S. federal income tax
consequences of the purchase, ownership and disposition of the securities held
by U.S. holders that hold the securities as capital assets. This summary is not
addressed to some types of holders subject to special treatment under U.S.
federal income tax law, such as individual retirement and other tax-deferred
accounts, dealers in securities or currencies, insurance companies, tax-exempt
organizations, persons holding the securities as part of a straddle, hedging,
conversion or other integrated transaction, or persons whose functional currency
is not the Dollar.

      The discussion below does not address U.S. federal estate and gift tax
considerations or the effect of any U.S. state or local tax law. Persons holding
the securities should consult their own tax advisors concerning the application
of the U.S. federal income tax law to their particular situations as well as any
tax consequences arising under the law of any state, local or foreign tax
jurisdiction.

      TAXATION OF INTEREST

      A U.S. holder must generally include in such holder's gross income all
interest income on a security (including interest on account of Mexican
withholding taxes, if any) at the time accrued or paid, in accordance with the
U.S. holder's usual method of tax accounting for U.S. federal income tax
purposes.

      Interest income on the securities will generally be treated as foreign
source income for U.S. federal income tax purposes.

      A U.S. holder's interest income will not be reduced by the Mexican taxes
withheld. Therefore, a U.S. holder will usually be required to include more
interest in such holder's gross income than such holder actually receives as
interest on the securities. A U.S. holder may, subject to some limitations,
elect to claim either a U.S. federal tax deduction or a credit for Mexican taxes
withheld from payments of interest on a security. The rules relating to foreign
tax credits are extremely complex and U.S. holders should consult with their own
tax advisors regarding the availability of a foreign tax credit and the
application of the foreign tax credit limitations to their particular situation.

      ORIGINAL ISSUE DISCOUNT

      Under the Internal Revenue Code, if the security's stated redemption price
at maturity exceeds its original issue price, that difference is called
"original issue discount." The U.S. Internal Revenue Service deems original
issue discount to be interest income. Therefore, subject to a de minimis
exception, U.S. holders will generally have to include original issue discount
in their income as ordinary income regardless of such holder's regular method of
accounting. Original issue discount is not included in income as a lump sum, but
as it accrues, and is calculated

                                      -88-

<PAGE>

assuming a constant yield to maturity (equal payments over time). Because this
calculation assumes a constant yield, a U.S. holder may be deemed to have
received income from original issue discount before the corresponding cash
payment is actually made.

      A security's stated redemption price at maturity will equal the sum of all
payments thereon, minus any part of the payments that is "qualified stated
interest." Qualified stated interest is interest that is:

      -     unconditionally payable in cash or in property (other than debt
            instruments of the issuer);

      -     paid at least annually; and

      -     paid at a single fixed rate (or, subject to certain conditions,
            based on one or more interest indices).

      Because interest was not paid on the debentures prior to the year 2002,
interest on the debentures is not "paid at least annually," and therefore none
of the payments on the debentures will constitute qualified stated interest.
Accordingly, no qualified stated interest deductions can be made from any
payment made on the debentures, and the full value of every payment will be used
in calculating the stated redemption price at maturity. As a result, the
debentures, but not the notes, will have substantial original issue discount and
U.S. holders of the debentures will be required to include original issue
discount in their gross income as described below.

      The amount of original issue discount a U.S. holder must include in gross
income is based upon the number of days such holder holds the debenture during
the tax year. A U.S. holder must include a portion of the original issue
discount for every day such holder holds a debenture. The daily portions of
original issue discount are calculated as follows:

      Step 1) Determine the number of days between interest accrual periods (183
              for semi-annual, for example).

      Step 2) Determine the debenture's yield to maturity (this is a complex
              calculation based on compounding interest at the end of each
              interest accrual period).

      Step 3) Multiply the adjusted issue price of the debenture (as described
              below) by the debenture's yield to maturity (see Step 2 above) to
              arrive at the amount of original issue discount that will accrue
              during the period.

      Step 4) Divide the total original discount accrued during the period (see
              Step 3 above) by the number of days between interest accrual
              periods (see Step 1 above) to arrive at the "daily portion" of
              original issue discount.

      To calculate the amount of original issue discount a U.S. holder must
include in such holder's gross income for each accrual period, multiply the
daily portion for that accrual period by the number of days such holder held the
debenture during that accrual period. If there is more than one accrual period
each year, the U.S. holder will have to re-calculate the daily portion of
original issue discount each accrual period. For example, if a debenture's
accrual period is one year, the U.S. holder will only have one accrual period
per taxable year, and will have to calculate the daily portion only once. If the
accrual period is six months (semi-annual), the U.S. holder will have two
accrual periods per taxable year, and will have to calculate a separate daily
portion for each accrual period.

      At the end of every accrual period, the issue price of the debenture must
be adjusted. During the first accrual period, the adjusted issue price is simply
the original issue price. After the first accrual period, however, the adjusted
issue price is the original issue price:

      -     plus the total original issue discount accrued in previous accrual
            periods; and

      -     minus the total amount of payments received on or before the
            beginning of the current accrual period.

      A U.S. holder generally may make an irrevocable election to include in its
income its entire return on a debenture (i.e., the excess of all remaining
payments to be received on a debenture, including stated interest, over the
amount paid by such holder for such debenture) in accordance with a constant
yield method based on the compounding of interest. For debentures purchased at a
premium or bearing market discount in the hands of the

                                      -89-

<PAGE>

U.S. holder, the U.S. holder making such election will also be deemed to have
made the election (discussed below in "Amortizable Bond Premium" and "Market
Discount") to amortize premium or to accrue market discount in income currently
on a constant-yield basis.

      Because of the complexity of the rules relating to original issue
discount, U.S. holders should consult their tax advisors as to the application
of these rules and as to the desirability, mechanics and consequences of making
any elections in connection with original issue discount.

      MARKET DISCOUNT

      If a U.S. holder purchases a note for less than its stated redemption
price at maturity or if a U.S. holder purchases a debenture for less than its
revised issue price, the difference will be treated as a "market discount" for
U.S. federal income tax purposes subject to a de minimis exception.

      Under the market discount rules, a U.S. holder will be required to treat
any payment on a security, or any gain on its sale, exchange, retirement or
other disposition, as ordinary income to the extent of the accrued market
discount which was not previously included in income. If the security is
disposed of in a non-taxable transaction (other than a non-recognition
transaction described in section 1276(c) of the Internal Revenue Code), accrued
market discount will be includible as ordinary income to the U.S. holder as if
it had sold the security at its fair market value. In addition, a U.S. holder
may be required to defer, until the maturity of the securities or their earlier
disposition (including a non-taxable transaction other than a transaction
described in section 1276(c) of the Internal Revenue Code), the deduction of all
or a portion of the interest expense in respect of any indebtedness incurred or
continued to purchase or carry the security. Market discount will be considered
to accrue on a straight-line basis during the period from the date of
acquisition to the respective maturity dates of the securities, unless the U.S.
holder elects to accrue on a constant-yield basis.

      A U.S. holder of a security may elect to include market discount in income
as it accrues on either a ratable or a constant yield basis. If a U.S. holder
makes this election, the rules regarding the treatment of gain upon the
disposition of the security and upon the receipt of certain cash payments as
ordinary income and regarding the deferral of interest deductions will not
apply. Currently, if a U.S. holder elects to include market discount in income
as it accrues, the election will apply to all market discount obligations
acquired during or after the first taxable year to which the election applies.
Currently this election may not be revoked without the consent of the Internal
Revenue Service.

      ACQUISITION PREMIUM

      A U.S. holder that purchases a security for an amount that is greater than
its adjusted issue price, but less than or equal to the sum of all amounts
payable on such security (other than qualified stated interest) after the
purchase date, will be considered to have purchased that security at an
"acquisition premium" within the meaning of the Internal Revenue Code. Under the
acquisition premium rules, the amount of original issue discount that the holder
must include in such holder's gross income for any taxable year will be reduced
by the following fraction:

            (Cost of security minus security's adjusted issue price)
            --------------------------------------------------------
                (Sum of all amounts still to be paid on security
                     minus security's adjusted issue price)

      Because the debentures (and not the notes) were issued with original issue
discount, the discussion above only applies to purchases of debentures.

      AMORTIZABLE BOND PREMIUM

      If a U.S. holder purchases a security for more than the sum of all amounts
payable on the security (other than qualified stated interest) after the
purchase date, that excess will be considered an "amortizable bond premium."
This holder may elect to amortize the premium to offset the interest from the
security such holder would otherwise be required to include in income (subject
to special rules for early redemption provisions). In any tax year, the holder
can only use as much of the premium as the constant yield method would allocate
to that year. The U.S. holder's basis in the security will be reduced by the
amount of bond premium, offset against interest. Currently, if a

                                      -90-

<PAGE>

U.S. holder elects to amortize the premium to offset the interest from the
securities, the election will apply to all debt instruments acquired during or
after the first taxable year to which the election applies. Currently, this
election may not be revoked without the consent of the Internal Revenue Service.

      TAXATION OF DISPOSITIONS

      A U.S. holder that holds a security as a capital asset will recognize gain
or loss for U.S. federal income tax purposes upon the sale, exchange, retirement
or other disposition of the security in an amount equal to the difference
between the amount realized and the U.S. holder's tax basis in the security. A
U.S. holder's tax basis in the securities will generally be the cost of the
security plus the original issue discount or market discount, if any, the U.S.
holder previously included in income minus any amortized premium or any payments
other than the payments of qualified stated interest made on the security.

      Except as described above with respect to market discount, the gain or
loss will be capital gain or loss. If, at the time of sale, exchange, or
retirement, the security has been held for more than 12 months, the gain or loss
will be long-term capital gain or loss. If a security has been held for not more
than 12 months, the gain or loss will be a short-term capital gain or loss.
Under current law, net long-term capital gains of individuals are typically
taxed at lower rates than items of ordinary income. The deductibility of capital
losses is subject to limitations. Any gain or loss recognized by a U.S. holder
generally will be treated as from sources within the U.S. for U.S. federal
income tax purposes.

      BACKUP WITHHOLDING AND INFORMATION REPORTING

      U.S. "backup" withholding may apply to some payments of principal and
interest on the securities and to certain payments of proceeds from the sale or
retirement of the securities. Generally these payments made by mail or wire
transfer to an address in the U.S. or made by a paying agent, broker or other
intermediary in the U.S. are subject to a backup withholding tax at a rate of
28.0% in 2004 if the U.S. holder fails to furnish such holder's taxpayer
identification number, which is a social security number or employer
identification number, to certify that the U.S. holder is not subject to backup
withholding, or to otherwise comply with the applicable requirements of the
backup withholding rules.

      Some U.S. holders, including, among others, all corporations, are not
subject to backup withholding. In addition, information reporting to the U.S.
Internal Revenue Service may apply to some payments of principal and interest,
if any, and premium in respect of the securities and to proceeds from the sale
or other disposition of the securities.

      Any amounts withheld under the backup withholding rules from a payment to
a U.S. holder with respect to the securities will be allowed as a refund or
credit against such U.S. holder's U.S. federal income tax liability; provided,
however, the U.S. holder timely furnishes the required information to the U.S.
Internal Revenue Service.

      THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE SECURITIES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.

F.    DIVIDEND AND PAYING AGENTS

      Not applicable.

G.    STATEMENT BY EXPERTS

      Not applicable.

                                      -91-

<PAGE>

H.    DOCUMENTS ON DISPLAY

      The documents concerning TFM and Grupo TFM that are referred to in this
report may be inspected at their offices at Av. Periferico Sur No. 4829, 4to
Piso, Col. Parques del Pedregal, Mexico, D.F. 14010, Mexico.

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 6 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 cash flows and related weighted average interest rates by expected
maturity date of its long-term debt as of December 31, 2003:

<TABLE>
<CAPTION>
                                               FIXED RATE         VARIABLE RATE
                MATURITY                         DEBT(1)             DEBT(2)
-----------------------------------------     --------------      -------------
                                                  (IN THOUSANDS OF DOLLARS)
<C>                                           <C>                 <C>
2004.....................................     $           --      $     121,571
2005.....................................                 --             36,571
2006.....................................                 --             36,571
2007.....................................            150,000                 --
Thereafter...............................     $      623,501      $          --
                                              --------------      -------------
  Total..................................     $      773,501      $     194,713
                                              ==============      =============
  Fair Value.............................     $      795,078      $     194,713
                                              ==============      =============
</TABLE>

-----------------------
   (1) Includes $150.0 million principal amount of senior notes at the annual
       interest rate of 10.25%, $443.5 million principal amount of debentures at
       the annual rate of 11.75% and $180.0 million principal amount of senior
       notes at the annual interest rate of 12.50%.

   (2) Includes notes under our commercial paper program at variable interest
       rates and notes under our term loan facility. The weighted average
       interest rate as of December 31, 2003 was approximately 1.28% for the
       commercial paper program and 3.97% for the term loan facility.

INTEREST RATE AGREEMENTS

      In the past, we have entered into some 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, 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, 2001, we
had Peso-denominated

                                      -92-

<PAGE>

monetary assets and liabilities of Ps. 1,725.0 million and Ps. 334.0 million,
respectively. At December 31, 2003, 2002 and 2001, the applicable Peso-Dollar
exchange rate was Ps. 11.23, Ps. 10.45 and Ps. 9.18 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. 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 had 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 months 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 5B, "Liquidity and Capital Resources -- Contractual
Obligations -- Covenants."

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

      None.

E.    USE OF PROCEEDS

      Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

      We maintain disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms.

      In designing and evaluating our disclosure controls and procedures, our
Chief Executive Officer and Chief Financial Officer recognize that any controls
and procedures, no matter how well-designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. Our Chief
Executive Officer and Chief Financial Officer, with the assistance of other
members of management, performed an evaluation of our disclosure controls and
procedures, as of the end of the period covered by this report. Based on such
evaluation, they have concluded that as of the end of the period covered by this
report, our disclosure controls and procedures were effective at the reasonable
assurance level.

      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

      Because neither TFM nor Grupo TFM has a formal audit committee, each of
TFM's and Grupo TFM's boards of directors is deemed to be each company's
respective audit committee for purposes of the Sarbanes-Oxley Act

                                      -93-

<PAGE>

and related regulations. Each of TFM's and Grupo TFM's boards of directors has
not determined that it has an "audit committee financial expert" (as defined by
the SEC) serving on each company's respective board of directors. However, we
believe that the current members of each of TFM's and Grupo TFM's boards of
directors collectively have the skills and experience to discharge fully their
respective duties as each company's respective audit committee.

ITEM 16B. CODE OF ETHICS

      We have adopted a written code of ethics that applies to all of our
employees, including our Chief Executive Officer, Chief Financial Officer and
principal accounting officer. We have filed a copy of this code of ethics as an
exhibit to this report.

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. ("PWC"),
independent accountants, to TFM and Grupo TFM for the years ended December 31,
2002 and 2003.
                     (Figures in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                                 ----------------------------------
                                                     2002                 2003
                                                 -------------        -------------
<S>                                              <C>                  <C>
Audit fees(1)............................        $       492.5        $       206.8
Audit-related fees(2)....................                   --                   --
Tax fees(3)..............................                 45.2                 17.7
All other fees(4)........................                   --                   --
                                                 -------------        -------------
  Total..................................        $       537.7        $       224.5
                                                 =============        =============
</TABLE>

-------------------------
      (1)   Audit fees include fees for services performed by the independent
            accountant 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)   All other fees include fees for services other than those described
            in the above categories.

      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 PWC, as well as
the budgeted fee levels for each of these services. PWC 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 PWC is
providing, as well as the status and cost of those services.

      During 2003, none of the services provided to TFM and Grupo TFM by PWC was
approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

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.

                                      -94-

<PAGE>

                                    PART III

ITEM 17. FINANCIAL STATEMENTS

      Not applicable.

ITEM 18. FINANCIAL STATEMENTS

      See pages F-1 through F-62.

                                      -95-

<PAGE>

ITEM 19. EXHIBITS

Documents filed as exhibits to this report.

Exhibit No.

      1.1   Corporate by-laws (Estatutos Sociales) of TFM, together with an
            English translation (incorporated herein by reference to Exhibit 3.1
            of our Registration Statement on Form F-4, File No. 333-8322).

      1.2   Corporate by-laws (Estatutos Sociales) of Grupo TFM, together with
            an English translation (incorporated herein by reference to Exhibit
            3.2 of our Registration Statement on Form F-4, File No. 333-8322).

      2.1   Indenture, dated as of June 16, 1997, among TFM, Grupo TFM, The Bank
            of New York, as Trustee, and Bankers Trust Luxembourg, S.A., as a
            Paying Agent, covering up to $150,000,000 of TFM's 10.25% Senior
            Notes due 2007 (incorporated herein by reference to Exhibit 4.1 of
            our Registration Statement on Form F-4, File No.333-8322).

      2.2   First Supplemental Indenture, dated as of May 21, 2002, TFM, Grupo
            TFM, as Guarantor, The Bank of New York, as Trustee, and Deutsche
            Bank Luxembourg S.A., as the Paying Agent, covering up to
            $150,000,000 of TFM's 10.25% Senior Notes due 2007 (incorporated
            herein by reference to Exhibit 2.2 from TFM and Grupo TFM's Annual
            Report on Form 20-F for fiscal year 2002).

      2.3   Indenture, dated as of June 16, 1997, among TFM, Grupo TFM, The Bank
            of New York, as Trustee, and Bankers Trust Luxembourg, S.A., as a
            Paying Agent, covering up to $443,500,000 of TFM's 11.75% Senior
            Discount Debentures due 2009 (incorporated herein by reference to
            Exhibit 4.2 of our Registration Statement on Form F-4, File No.
            333-8322).

      2.4   First Supplemental Indenture, dated as of May 21, 2002, TFM, Grupo
            TFM, as Guarantor, The Bank of New York, as Trustee, and Deutsche
            Bank Luxembourg S.A., as the Paying Agent, covering up to
            $443,500,000 of TFM's 11.75% Senior Discount Debentures due 2009
            (incorporated herein by reference to Exhibit 2.4 from TFM and Grupo
            TFM's Annual Report on Form 20-F for fiscal year 2002).

      2.5   Indenture, dated as of June 13, 2002, between TFM and The Bank of
            New York, as Trustee, covering up to $180,000,000 of TFM's 12.50%
            Senior Notes due 2012 (incorporated herein by reference to Exhibit
            4.3 of our Registration Statement on Form F-4, File No. 333-102222).

      2.6   Specimen Global Note representing the Senior Notes (incorporated
            herein by reference to Exhibit 4.3 of our Registration Statement on
            Form F-4, File No.333-8322).

      2.7   Specimen Global Note representing the Senior Discount Debentures
            (incorporated herein by reference to Exhibit 4.4 of our Registration
            Statement on Form F-4, File No. 333-8322).

      2.8   Specimen Global Note representing the Senior Notes due 2012 exchange
            notes (incorporated herein by reference to Exhibit 4.6 of our
            Registration Statement on Form F-4, File No. 333-102222).

                                      -96-

<PAGE>

      2.9   Purchase Agreement, dated as of June 6, 2002, between TFM and
            Salomon Smith Barney Inc. and J.P. Morgan Securities Inc.
            (incorporated herein by reference to Exhibit 10.16 of TFM's
            Registration Statement on Form F-4, File No. 333-102222).

      4.1   Concession title granted by the Secretaria de Comunicaciones y
            Transportes ("SCT") in favor of Ferrocarril del Noreste, S.A. de
            C.V. ("FNE"), 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. 333-8322).

      4.2   Amendment dated February 12, 2001 of Concession title granted by SCT
            in favor of TFM, formerly known as FNE, 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   Credit Agreement, dated as of September 19, 2000 among TFM, the
            several Banks parties thereto, Westdeutsche Landesbank Girozentrale,
            New York Bank, as the Issuing Bank, Chase Securities Inc., as Lead
            Arranger, Banc of America Securities LLC and Westdeutsche Landesbank
            Girozentrale, New York Branch as Co-Syndication Agents and
            Co-Documentation Agents, and The Chase Manhattan Bank, as
            Administration Agent (the "Commercial Paper Credit Agreement")
            (incorporated herein by reference to Exhibit 4.3 from TFM and Grupo
            TFM's Annual Report on Form  20-F for fiscal year 2000).

      4.4   Amendment, dated as of December 5, 2000, to the Commercial Paper
            Credit Agreement (incorporated herein by reference to Exhibit 4.4
            from TFM and Grupo TFM's Annual Report on Form 20-F for fiscal year
            2000).

      4.5   Second Amendment, dated as of September 25, 2001, to the Commercial
            Paper Credit Agreement (incorporated herein by reference to Exhibit
            4.5 from TFM and Grupo TFM's Annual Report on Form 20-F for fiscal
            year 2001).

      4.6   Credit Agreement, dated as of September 17, 2002, among TFM,
            Standard Chartered Bank as issuing bank, J.P. Morgan Securities
            Inc., as joint lead arranger and sole book manager, Salomon Smith
            Barney Inc., as joint lead arranger, Bank of America, N.A., Comerica
            Bank and Landesbank Schleswig-Holstein Girozentrale, Kiel, as
            arrangers, Standard Chartered Bank, as arranger and documentation
            agent, JPMorgan Chase Bank, as administrative agent, and the banks
            named therein (incorporated herein by reference to Exhibit 10.8 of
            our Registration Statement on Form F-4, File No. 333-102222).

      4.7   First Amendment, dated as of May 2, 2003 to the Credit Agreement,
            dated as of September 17, 2002, among TFM, Standard Chartered Bank
            as issuing bank, J.P. Morgan Securities Inc., as joint lead arranger
            and sole book manager, Salomon Smith Barney Inc., as joint lead
            arranger, Bank of America, N.A., Comerica Bank and Landesbank
            Schleswig-Holstein Girozentrale, Kiel, as arrangers, Standard
            Chartered Bank, as arranger and documentation agent, JPMorgan Chase
            Bank, as administrative agent, and the banks named therein
            (incorporated herein by reference to Exhibit 4.7 from TFM and Grupo
            TFM's Annual Report on Form 20-F for fiscal year 2002).

                                      -97-

<PAGE>

      4.8   Credit Agreement, dated as of September 17, 2002, among TFM, J.P.
            Morgan Securities Inc., as joint lead arranger and sole book
            manager, Salomon Smith Barney Inc., as joint lead arranger, Bank of
            America, N.A., Comerica Bank and Landesbank Schleswig-Holstein
            Girozentrale, Kiel, as arrangers, Standard Chartered Bank, as
            arranger and documentation agent, JPMorgan Chase Bank, as
            administrative agent, and the banks named therein (incorporated
            herein by reference to Exhibit 10.9 of our Registration Statement on
            Form F-4, File No. 333-102222).

      4.9   First Amendment, dated as of May 2, 2003 to the Credit Agreement,
            dated as of September 17, 2002, among TFM, J.P. Morgan Securities
            Inc., as joint lead arranger and sole book manager, Salomon Smith
            Barney Inc., as joint lead arranger, Bank of America, N.A., Comerica
            Bank and Landesbank Schleswig-Holstein Girozentrale, Kiel, as
            arrangers, Standard Chartered Bank, as arranger and documentation
            agent, JPMorgan Chase Bank, as administrative agent, and the banks
            named therein (incorporated herein by reference to Exhibit 4.9 from
            TFM and Grupo TFM's Annual Report on Form 20-F for fiscal year
            2002).

      4.10  Management Services Agreement between TFM and TMM dated May 1997
            (incorporated herein by reference to Exhibit 10.1 of our
            Registration Statement on Form F-4, File No. 333-8322).

      4.11  Amendment, dated as of April 30, 2002, to the TMM Management
            Services Agreement (incorporated herein by reference to Exhibit 4.11
            from TFM and Grupo TFM's Annual Report on Form 20-F for fiscal year
            2002).

      4.12  Management Services Agreement between TFM and KCS Transportation
            Company, dated May 1997 (incorporated herein by reference to Exhibit
            10.2 of our Registration Statement on Form F-4, File No. 333-8322).

      4.13  Amendment, dated as of April 30, 2002, to the KCS Management
            Services Agreement (incorporated herein by reference to Exhibit
            10.15 of our Registration Statement on Form F-4, File No.
            333-102222).

      4.14  Omnibus Agreement among Grupo TFM, Caymex Transportation, Inc., TMM
            Multimodal, S.A. de C.V. and Ferrocarriles Nacionales de Mexico,
            S.A. de C.V. ("FNM"), dated June 9, 1997, together with an English
            translation (incorporated herein by reference to Exhibit 10.5 of our
            Registration Statement on Form F-4, File No. 333-8322).

      4.15  Sale Purchase Agreement respecting Capital Stock of FNE, among the
            United Mexican States (through SCT), FNE and FNM, dated December 2,
            1996, together with an English translation (incorporated herein by
            reference to Exhibit 2.2 of our Registration Statement on Form F-4,
            File No. 333-8322).

      4.16  Sale Purchase Agreement respecting Property and Equipment, among the
            United Mexican States (through SCT), FNE and FNM, dated December 2,
            1996, together with an English translation (incorporated herein by
            reference to Exhibit 2.3 of our Registration Statement on Form F-4,
            File No. 333-8322).

      4.17  English translation of the Purchase-Sale Agreement, dated July 29,
            2002, by and between TFM, FNM and Nacional Financiera, S.N.C.,
            Institucion de Banca de Desarrollo (incorporated herein by reference
            to Exhibit 10.16 of our Registration Statement on Form F-4, File No.
            333-102222).

                                      -98-

<PAGE>

      4.18  Stock Purchase Agreement, dated as of February 27, 2002, entered
            into, by and among TMM Multimodal, S.A. de C.V., Grupo TMM, S.A. de
            C.V., The Kansas City Southern Railway Company, Kansas City Southern
            Industries, Inc. and TFM, S.A. de C.V. (incorporated herein by
            reference to Exhibit 4.11 from TFM and Grupo TFM's 4.18 Annual
            Report on Form 20-F for fiscal year 2001).

      4.19  Stock Purchase Agreement, dated as of April 15, 2003, by and among
            Kansas City Southern, Grupo TMM and TFM (incorporated herein by
            reference to Exhibit 10.26 of Grupo TMM's Registration Statement on
            Form F-4, Registration No. 333-112242).

      8.1*  List of subsidiaries of TFM.

      11.1* English translation of TFM's Code of Ethics.

      12.1* Certification of Chief Executive Officer of TFM and Grupo TFM.

      12.2* Certification of Chief Financial Officer of TFM and Grupo TFM.

      13.1* Certification of Chief Executive Officer and Chief Financial Officer
            of TFM and Grupo TFM, pursuant to 18 U.S.C. Section 1350, as adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

    * Filed herewith.

                                      -99-

<PAGE>

                                   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.

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

                                      By: /s/ Jacinto Marina Cortes
                                          --------------------------
                                          Name: Jacinto Marina Cortes
                                          Title: Chief Financial Officer

                                      By: /s/ Leon Ortiz
                                          -----------------------
                                          Name: Leon Ortiz
                                          Title:   Treasurer

Date: June 29, 2004

<PAGE>

                                      INDEX

                                TFM, S.A. DE C.V.

                 COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2002 AND 2003

<TABLE>
<CAPTION>
                              CONTENTS                                                PAGE
                              --------                                                ----
<S>                                                                                   <C>
Report of Independent Registered Public Accounting Firm............................   F-2

Combined and Consolidated Balance Sheets...........................................   F-3

Combined and Consolidated Statements of Income.....................................   F-4

Combined and Consolidated Statements of Changes in Stockholders' Equity............   F-5

Combined and Consolidated Statements of Cash Flows.................................   F-6

Notes to the Combined and Consolidated Financial Statements........................   F-8
</TABLE>

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

                 COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003

<TABLE>
<CAPTION>
                              CONTENTS                                                PAGE
                              --------                                                ----
<S>                                                                                   <C>
Report of Independent Registered Public Accounting Firm............................   F-33

Combined and Consolidated Balance Sheets...........................................   F-34

Combined and Consolidated Statements of Income.....................................   F-35

Combined and Consolidated Statements of Changes in Stockholders' Equity............   F-36

Combined and Consolidated Statements of Cash Flows.................................   F-37

Notes to the Combined and Consolidated Financial Statements........................   F-38
</TABLE>

                                       F-1

<PAGE>

                                TFM, S.A. DE C.V.

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Mexico City, March 19, 2004, except for Note 13, which is dated June 24, 2004

To the Board of Directors and Stockholders of
TFM, S.A. de C.V.

We have audited the accompanying combined and consolidated balance sheets of
TFM, S.A. de C.V. and subsidiaries as of December 31, 2003 and 2002, and the
related combined and consolidated statements of income, of changes in
stockholders' equity and of cash flows for each of the three years in the period
ended December 31, 2003, all expressed in US dollars. These combined and
consolidated financial statements are the responsibility of the Company's
Management. Our responsibility is to express an opinion on these combined and
consolidated financial statements based on our audits.

We conducted our audits in accordance with International Auditing Standards and
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and that they were prepared in accordance with International
Financial Reporting Standards. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by Management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the aforementioned combined and consolidated financial
statements present fairly, in all material respects, the combined and
consolidated financial position of TFM, S.A. de C.V. and subsidiaries as of
December 31, 2003 and 2002, and the combined and consolidated results of their
operations, the changes in their stockholders' equity and their cash flows for
each of the three years in the period ended December 31, 2003, in conformity
with International Financial Reporting Standards.

International Financial Reporting Standards vary in certain significant respects
from Accounting Principles Generally Accepted in the United States of America.
Information relating to the nature and effect of such differences is presented
in Note 12 to the combined and consolidated financial statements.

PricewaterhouseCoopers

Alberto Del Castillo V. Vilchis
Audit Partner

                                      F-2

<PAGE>

                                TFM, S.A. DE C.V.

                    COMBINED AND CONSOLIDATED BALANCE SHEETS
                                    (NOTE 1)
                      (amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                              ------------
                                                                                          2002             2003
                                                                                      ------------     ------------
<S>                                                                                   <C>              <C>
ASSETS
Current assets:
     Cash and cash equivalents......................................................  $     30,221     $      3,569
     Accounts receivable - Net......................................................        90,596          101,595
     Amounts due from related parties (Note 7)......................................         5,316            5,410
     Taxes recoverable..............................................................        78,808           51,244
     Other accounts receivable - Net................................................        27,820           34,046
     Materials and supplies.........................................................        20,261           16,693
     Other current assets...........................................................        12,200           13,157
         Total current assets.......................................................       265,222          225,714
                                                                                      ------------     ------------
Long-term account receivable........................................................         1,388            1,350
Concession rights and related assets - Net (Note 3).................................     1,164,301        1,124,182
Property, machinery and equipment - Net (Note 4)....................................       609,367          632,431
Long-term receivable from Grupo TFM (Note 7)........................................       661,477          661,116
Investment held in associate company (Note 2h.).....................................         7,435            8,020
Other assets........................................................................           524            1,503
Deferred income taxes (Note 10).....................................................        97,178           73,833
                                                                                      ------------     ------------
         Total assets...............................................................  $  2,806,892     $  2,728,149
                                                                                      ============     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term liabilities:

     Current portion of long-term debt (Note 5).....................................  $     18,286     $    192,740
     Current portion of capital lease obligations (Note 11).........................           267              414
     Amounts owed to related parties (Note 7).......................................         9,175           10,010
     Suppliers......................................................................        57,236           65,522
     Advance payments from customers................................................         7,055            5,809
     Accounts payable and accrued expenses..........................................        55,276           86,179
                                                                                      ------------     ------------
         Total short-term liabilities...............................................       147,295          360,674
                                                                                      ------------     ------------
Long-term portion of capital lease obligations (Note 11)............................         1,875            1,556
Long-term debt (Note 5).............................................................       968,555          745,189
Other long-term liabilities.........................................................        40,735           33,724
                                                                                      ------------     ------------
         Total long-term liabilities................................................     1,011,165          780,469
                                                                                      ------------     ------------
         Total liabilities..........................................................     1,158,460        1,141,143
                                                                                      ------------     ------------
Minority interest (Note 2o.)........................................................           (84)            (466)
                                                                                      ------------     ------------
Commitments and contingencies (Note 11)
Subsequent events (Note 13)
Stockholders' equity (Note 8):
Common stock, 1,383,987,505 shares authorized, issued and outstanding without
  par value.........................................................................     1,758,882        1,758,882
Effect on purchase of subsidiary shares.............................................       (41,952)         (41,952)
Treasury shares.....................................................................      (256,130)        (256,130)
Retained earnings...................................................................       187,716          126,672
                                                                                      ------------     ------------
         Total stockholders' equity.................................................     1,648,516        1,587,472
                                                                                      ------------     ------------
         Total liabilities and stockholders' equity.................................  $  2,806,892     $  2,728,149
                                                                                      ============     ============
</TABLE>

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

                                      F-3

<PAGE>

                                TFM, S.A. DE C.V.

                 COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
                                 (NOTES 1 AND 7)
         (amounts in thousands of US dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                           -----------------------
                                                                                     2001           2002            2003
                                                                                   ---------   -------------   -------------
<S>                                                                                <C>         <C>             <C>
Transportation revenues.........................................................   $ 720,627    $    712,140    $    698,528
                                                                                   ---------   -------------   -------------
Costs and expenses:
     Salaries, wages and employee benefits......................................     128,845         124,413         121,762
     Purchased services.........................................................     147,015         163,835         155,594
     Fuel, material and supplies................................................      68,717          58,594          71,843
     Other costs................................................................     147,578         129,428         130,769
     Depreciation and amortization..............................................      78,345          81,401          85,403
                                                                                   ---------   -------------   -------------
                                                                                     570,500         557,671         565,371
                                                                                   ---------   -------------   -------------
Income on transportation........................................................     150,127         154,469         133,157
                                                                                   ---------   -------------   -------------
Other income (expenses) - Net (Note 9)..........................................      34,257         (19,614)        (35,601)
                                                                                   ---------   -------------   -------------
Operating income................................................................     184,384         134,855          97,556
                                                                                   ---------   -------------   -------------
Interest income.................................................................       4,510           4,974           1,509
Interest expense................................................................     (87,009)       (101,722)       (112,641)
Exchange gain (loss) - Net......................................................       2,819         (17,508)        (13,744)
                                                                                   ---------   -------------   -------------
Net financing cost..............................................................     (79,680)       (114,256)       (124,876)
                                                                                   ---------   -------------   -------------
Income (loss) before provision for deferred
Income taxes and minority interest..............................................     104,704          20,599         (27,320)
Income tax and deferred income tax expense (Note 10)............................      (2,550)        (32,033)        (34,107)
                                                                                   ---------   -------------   -------------
Income (loss) before minority interest..........................................     102,154         (11,434)        (61,427)

Minority interest...............................................................                          84             383
                                                                                   ---------   -------------   -------------
Net income (loss) for the year..................................................   $ 102,154   ($     11,350)  ($     61,044)
                                                                                   =========   =============   =============
Net income (loss) for the year per share (Note 2p.).............................   $  0.0738   ($     0.0082)  ($      0.441)
                                                                                   =========   =============   =============
</TABLE>

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

                                      F-4

<PAGE>

                                TFM, S.A. DE C.V.

                 COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES
                   IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
                        DECEMBER 31, 2001, 2002 AND 2003
                                 (NOTES 1 AND 8)
                      (amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                EFFECT ON
                                                               PURCHASE OF
                                               COMMON          SUBSIDIARY          TREASURY         RETAINED
                                                STOCK            SHARES             SHARES          EARNINGS           TOTAL
                                             -----------      ------------       -----------       -----------      -----------
<S>                                          <C>              <C>                <C>               <C>              <C>
Balance at December 31, 2000 ............    $ 1,758,882       $    22,390                         $    96,537      $ 1,877,809
Net income for the year .................                                                              102,154          102,154
                                             -----------       -----------                         -----------      -----------
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           (41,952)         (256,130)          187,716        1,648,516
Net loss for the year ...................                                                              (61,044)         (61,044)
                                             -----------       -----------        ----------       -----------      -----------
Balance at December 31, 2003 ............    $ 1,758,882      ($    41,952)      ($  256,130)      $   126,672      $ 1,587,472
                                             ===========      ============       ===========       ===========      ===========
</TABLE>

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

                                      F-5

<PAGE>

                                TFM, S.A. DE C.V.

               COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (NOTE 1)
                      (amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                           -----------------------
                                                                                    2001           2002            2003
                                                                                ------------   ------------    ------------
<S>                                                                             <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year...............................................   $    102,154   ($    11,350)   ($    61,044)
                                                                                ------------   ------------    ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
     Depreciation and amortization...........................................         78,345         81,401          85,403
     Amortization of discount on senior secured debentures and
     commercial paper........................................................         49,408         23,158             370
     Income tax deferred income tax expense..................................          2,550         32,033          34,107
     Minority interest.......................................................                           (84)           (383)
     Loss on sale of property, machinery and equipment - Net.................          7,585          6,897           2,909
     Gain on transfer of concession rights - Net.............................        (60,744)
     Changes in assets and liabilities:
         Accounts receivable.................................................        (17,450)        12,621         (10,999)
         Long-term receivable from Grupo TFM.................................            (38)          (203)            361
         Other accounts receivable...........................................        (16,266)       (36,915)         21,338
         Materials and supplies..............................................          1,269          3,068           3,568
         Other current assets................................................         (1,084)        (2,170)           (957)
         Amounts due to related parties......................................        (42,109)         8,311             741
         Accounts payable and accrued expenses...............................         11,909         13,814          27,180
         Other non-current assets and long-term liabilities..................          4,523         (5,331)         (2,930)
                                                                                ------------   ------------    ------------
              Total adjustments..............................................         17,898        136,600         160,708
                                                                                ------------   ------------    ------------
Net cash provided by operating activities....................................        120,052        125,250          99,664
                                                                                ------------   ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Mexrail, Inc...................................................                       (44,000)
Sale of property, machinery and equipment....................................          2,012            642           2,390
Acquisition of property, machinery and equipment.............................        (85,245)       (89,355)        (73,121)
Acquisition of treasury shares...............................................                      (162,575)
                                                                                ------------   ------------    ------------
Net cash used in investing activities........................................        (83,233)      (295,288)        (70,731)
                                                                                ------------   ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under commercial paper..............................................        (25,156)      (340,000)        (37,001)
Proceeds from commercial paper...............................................                       196,738
Proceeds from senior notes...................................................                       175,241
Proceeds from term loan facility.............................................                       128,000
Principal payment of term loan facility......................................                                       (18,286)
Principal payments under capital lease obligations...........................         (4,227)          (298)           (298)
                                                                                ------------   ------------    ------------
Net cash (used in) provided by financing activities..........................        (29,383)       159,681         (55,585)
                                                                                ------------   ------------    ------------
Increase (decrease) in cash and cash equivalents.............................          7,436        (10,357)        (26,652)
Cash and cash equivalents:
     Beginning of the year...................................................         33,142         40,578          30,221
                                                                                ------------   ------------    ------------
     End of the year.........................................................   $     40,578   $     30,221    $      3,569
                                                                                ============   ============    ============
</TABLE>

                                      F-6

<PAGE>

<TABLE>
<S>                                                                             <C>             <C>             <C>
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest.......................................   $     28,779    $    58,525     $    98,626
                                                                                ============    ===========     ===========
NON CASH TRANSACTIONS:

Due from Mexican Government                                                     $     81,892    $    93,555
                                                                                ============    ===========
Due from related parties.....................................................                   $    20,000
                                                                                                ===========
Assets acquired through capital lease obligation.............................   $      2,448                    $       120
                                                                                ============    ===========     ===========
</TABLE>

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

                                      F-7
<PAGE>

                                TFM, S.A. DE C.V.

           NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
         (amounts in thousands of US dollars, except number of shares)

NOTE 1 - THE COMPANY:

      TFM, S.A. de C.V. ("TFM" or the "Company") was established by the Mexican
Government (the "Government") in November 1996 in connection with the
privatization of the Mexican rail system, which had been operated by
Ferrocarriles Nacionales de Mexico ("FNM"). In December 1996, Grupo
Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM") was awarded the
right to acquire (the "Acquisition") an 80% interest in TFM, pursuant to a stock
purchase agreement.

      TFM lines are comprised of approximately 2,638 (excluding the 20 miles of
the Griega- Mariscala stretch, see Note 3) miles of track which form a
strategically important rail link within Mexico and to the North American Free
Trade Agreement corridor. TFM lines directly link Mexico City and Monterrey (as
well as Guadalajara through trackage rights) with the ports of Lazaro Cardenas,
Veracruz and Tampico and the Mexican/United States border crossings of Nuevo
Laredo-Laredo, Texas and Matamoros-Brownsville, Texas.

      Approximately 71% of the Company's employees are covered under a
collective bargaining agreement dated July 1, 2001. Under this labor agreement,
the compensation terms of the collective bargaining agreement are subject to
renegotiation on an annual basis, whereas all other terms are to be renegotiated
every two years.

      On February 27, 2002, Grupo TMM, S.A. de C.V. ("Grupo TMM") and Kansas
City Southern ("KCS") announced that they had agreed to sell Mexrail (a US
Company), and its wholly owned subsidiary, the Tex-Mex Railway, to TFM for an
aggregate price of $64 million ($32.6 million to Grupo TMM and $31.4 million to
KCS). The sale was completed on March 27, 2002 and the purchase was paid by
crediting an account receivable amounting to $20,000, due from Grupo TMM, and
the remaining balance of $44,000 was paid in cash. As a result, Mexrail, Inc.,
with its wholly owned subsidiary, the Tex-Mex Railway, became wholly owned
subsidiaries of TFM. TFM now controls the operation and dispatching of the
entire international rail bridge.

      The purchase of Mexrail by TFM was accounted for at historical cost in a
manner similar to a pooling of interest because it is considered a business
reorganization among companies within the same control group. As a result, all
the assets and liabilities acquired by TFM were recorded at their historical
cost. The transaction resulted in a reduction of stockholders' equity, amounting
to $41,952 representing the difference between the historical carrying value of
the assets and liabilities acquired and the purchase price of $64,000.

      Since the above sale of Mexrail to TFM was a transaction between entities
under common control, the transaction, for financial reporting purposes, has
been retroactively restructured for all the previous periods on a historical
cost basis in a manner similar to a pooling of interest.

      Arrendadora TFM, S.A. de C.V. was incorporated on September 27, 2002 under
the Mexican Law regulations and its only operation is the leasing to TFM of the
locomotives acquired through the privatization previously transferred by TFM
(locomotives in 2002 and cars in 2003). Arrendadora TFM is a subsidiary of TFM.

      On May 9, 2003, TFM sold its 51% interest in Mexrail and its wholly owned
subsidiary the Tex-Mex Railway, to KCS for 32.6 million. The Mexrail stock sold
was to remain in an independent voting trust pending approval of the transaction
by the U.S. Surface Transportation Board ("STB"). Within two years of the date
of this 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. Since the sale was conditional on obtaining approval of the
transaction by the STB, TFM recognized a liability for the net present value of
the purchase price. Proceeds from the sale were re-invested in TFM. In September
2003, TFM reacquired for $32.6 million the shares previously transferred to KCS,
and the related liability was canceled.

                                      F-8
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      TFM and subsidiaries prepare their financial statements in accordance with
International Financial Reporting Standards ("IFRS") expressed in US dollars,
which differ in certain material respects from those under United States of
America Generally Accepted Accounting Principles ("U.S. GAAP"). See Note 12. The
most significant accounting policies are described below.

      a.    CONSOLIDATION

      The consolidated financial statements include the accounts of TFM and its
subsidiaries. All intercompany balances and transactions have been eliminated.

      b.    TRANSLATION

      Although TFM and subsidiaries are required to maintain for tax purposes
their books and records in Mexican pesos ("Ps"), except Mexrail and its
subsidiary, TFM and subsidiaries keep records and use the US dollar as their
functional and reporting currency.

      Monetary assets and liabilities denominated in Mexican pesos are
translated into US dollars using current exchange rates. The difference between
the exchange rate on the date of the transaction and the exchange rate on the
settlement date, or balance sheet date if not settled, is included in the income
statement as a foreign exchange gain/loss. Non-monetary assets or liabilities
originally denominated in Mexican pesos are translated into US dollars using the
historical exchange rate at the date of the transaction. Capital stock
transactions and minority interest are translated at historical rates. Results
of operations are mainly translated at the monthly average exchange rates.
Depreciation and amortization of non-monetary assets are translated at the
historical rate.

      c.    CASH AND CASH EQUIVALENTS

      Cash and cash equivalents represent highly liquid interest-bearing
deposits and investments with an original maturity of less than three months and
are stated at cost plus interest earned.

      d.    ACCOUNTS RECEIVABLE

      Accounts receivable are carried at original invoice amount less provision
made for impairment of these receivables. A provision for impairment of trade
receivables is established when there is objective evidence that the Company
will not be able to collect all amounts due according to the original terms of
receivables.

      e.    MATERIALS AND SUPPLIES

      Materials and supplies consist mainly of fuel and items for maintenance of
property and equipment, are valued at the lower of the average cost and net
realizable value.

      f.    CONCESSION RIGHTS AND RELATED ASSETS

      Costs incurred by the Company to acquire the concession rights and related
assets were capitalized and are amortized on a straight-line basis over the
estimated useful lives of the related assets and rights acquired (see Notes 3).
The purchase price to acquire the concession rights and related assets was
allocated to the identifiable assets acquired and liabilities assumed in
connection with the privatization process (see Note 3) based on their estimated
fair value.

      The assets acquired and liabilities assumed include:

            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;

                                      F-9
<PAGE>

            iii.  The 25% equity interest in the company established to operate
      the Mexico City rail terminal facilities; and

            iv.   Capital lease obligations assumed.

      g.    PROPERTY, MACHINERY AND EQUIPMENT

      Machinery and equipment acquired through the asset purchase agreement were
initially recorded at their estimated fair value. Subsequent acquisitions are
stated at cost. Depreciation is calculated by the straight-line method based on
the estimated useful lives of the respective fixed assets (see Note 4).

      Recurring maintenance and repair expenditures are charged to operating
expenses as incurred. The cost of locomotives rebuilt is capitalized and is
amortized over the period in which benefits are expected to be received (eight
years).

      h.    INVESTMENT HELD IN ASSOCIATE COMPANY

      TFM's 25% interest in the Mexico City rail terminal is accounted for using
the equity method of accounting. For the years ended December 31, 2001, 2002 and
2003, the equity in the loss (income) of Mexico City rail terminal amounted to
$915, ($1,269) and ($282), respectively and is included in other income
(expenses) - net in the combined and consolidated statements of income (see Note
9).

      i.    DEFERRED INCOME TAX

      Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax basis of assets and liabilities
and their carrying amounts in the financial statements. Currently enacted tax
rates are used in the determination of deferred income tax.

      Deferred tax assets are recognized to the extent that it is probable that
future taxable profit against which the temporary differences can be utilized,
will be available.

      Deferred income tax is provided on temporary differences arising on
investment in subsidiaries and associates, except where the timing of the
reversal of the temporary difference can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable future.

      j.    BORROWINGS

      Borrowings are recognized initially as the proceeds received, net of
transactions costs incurred. Borrowings are subsequently stated at amortized
cost using the effective yield method; any difference between proceeds (net of
transactions costs) and the redemption value is recognized in the income
statements over the period of the borrowings.

      k.    SENIORITY PREMIUMS

      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. Starting in 2002, the Company recognized the seniority
premiums based on actuarial computations. At December 31, 2002 and 2003, the
Company had a provision of $778 and $847, respectively, which is included in
other long-term liabilities in the combined and consolidated balance sheets.

      Other compensations based on length of service to which employees may be
entitled in the event of dismissal in accordance with the Mexican Federal Labor
Law, are charged to the statement of income in the year in which they become
payable.

      l.    REVENUE RECOGNITION

      Revenue is recognized proportionally as a shipment moves from origin to
destination.

                                      F-10
<PAGE>

      m.    IMPAIRMENT

      The carrying value of intangible assets and long-lived assets are
periodically reviewed by the Company and impairments are recognized whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. An impairment loss is recognized for the amount by which the
carrying amount of the assets exceeds its recoverable amount, which is the
higher of an asset's net selling price and its value in use. For the purpose of
assessing impairment, assets are grouped at the lowest level for which there are
separately identifiable discounted cash flows.

      n.    LEASES

      Leases of property, machinery and equipment where the Company has
substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalized at the inception of the lease at the
lower of the fair value of the leased property and the present value of the
minimum lease payments. Each lease payment is allocated between the liability
and finance charges so as to achieve a constant rate of the finance balance
outstanding. The interest element of the finance cost is charged to the income
statement over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period.

      Leases where the lessor retains a significant portion of the risks and
rewards of ownership are classified as operating leases. Payments made under
operating leases are charged to the income statement on a straight-line basis
over the period of the lease.

      o.    MINORITY INTEREST

      The minority interest reflects the 2% share of Arrendadora TFM held by
Grupo TFM.

      p.    NET INCOME (LOSS) PER SHARE

      Net income (loss) per share is calculated based on the weighted average
number of shares outstanding during the year. The weighted average number of
shares outstanding for the years ended December 31, 2001, 2002 and 2003 was
1,383,987,505.

      q.    USE OF ESTIMATES

      The preparation of the combined and consolidated financial statements
requires Management to make estimates and assumptions that could affect the
reported amounts of assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.

      r.    FINANCIAL RISK MANAGEMENT

            i.    Financial risk factors

      The Company enters into financial and commodity derivative instruments as
a part of its risk management program including currency exchange contracts
interest rate arrangements and U.S. based fuel futures. These contracts are
marked to market and accordingly gains and losses related to such transactions
are recognized in results of operations on a monthly basis. See Note 6.

            ii.   Foreign exchange risk

      TFM operates internationally and is exposed to foreign exchange risk
arising from exposure primarily with respect to the Mexican peso.

      At December 31, 2003 TFM had monetary assets and liabilities denominated
in Mexican pesos of Ps1,325 million and Ps261 million (Ps1,292 million and Ps414
million, at December 31, 2002), respectively. At December 31, 2002 and 2003 the
exchange rate was Ps10.45 and Ps11.23 per US dollar, respectively. At March 19,
2004, date of issuance of these combined and consolidated financial statements,
the exchange rate was Ps10.98 per US dollar.

                                      F-11
<PAGE>

            iii.  Interest-rate risk

      The Company's income and operating cash flows are substantially
independent of changes in market interest rates. The interest rates of the
finance leases to which TFM is lessor are fixed at the inception of the lease.
TFM's policy is to maintain approximately 75% of its borrowings in fixed-rate
instruments. At the years ended December 31, 2002 and 2003 75% and 80% were at
fixed rates.

            iv.   Concentration of risk

      Over 19.4% of the Company's transportation revenues are generated by the
automotive industry, which is made up of a relatively small number of customers.
In addition, the Company's largest customer accounted for approximately 10% of
transportation revenues. The Company performs ongoing credit valuations of its
customers' financial conditions and maintains a provision for impairment of
those receivables.

      s.    RECLASSIFICATIONS

      Certain figures of the years 2001 and 2002 were reclassified according to
2003 figures.

      t.    NEW ACCOUNTING PRONOUNCEMENTS

      The International Accounting Standards Board ("IASB") on December 18, 2003
revised International Accounting Standards ("IAS") 1, 2, 8, 10, 16, 17, 21, 24,
27, 28, 31, 33 and 40 and gave notice of the withdrawal of IAS 15. The revised
standards mark the near-completion of the IASB's improvement project.

      The project addressed concerns, questions and criticism raised by
securities regulators and other interested parties about the existing set of
IASs. The project brings:

      -     Removal of some options (i. e. allowed alternatives)

      -     Better reporting through convergence

      -     New guidance and disclosures

      Improved versions of two further standards (IAS 32 and IAS 39) were also
revised by the Board as part of its improvements project and issued on December
17, 2003.

      The effective date for the amended standards is for financial periods
beginning on or after January 1, 2005. Earlier adoption is permitted.

      On February 19, 2004, the IASB published IFRS 2, "Shares-based Payment".
Effective date is for periods beginning on or after January 1, 2005. IFRS 2
replaces the IAS 19 disclosure requirements of equity compensation benefits. The
IFRS 2 requires an entity to recognize share-based payment transactions in its
financial statements, including transactions with employees or other parties to
be settled in cash, other assets or equity instruments of the entity. The
standard sets out measurement principles and specific requirements for three
types of share-based payment transactions: equity-settled share-based payment
transactions; cash-settled share-based transactions and with settlement
alternatives.

      Management is currently evaluating the impact, if any, of the adoption of
the above-mentioned standards.

NOTE 3 - CONCESSION RIGHTS AND RELATED ASSETS:

      In December 1996, the Government granted TFM the concession (the
"Concession") to operate the northeast rail lines for an initial period of fifty
years, exclusive for thirty years, renewable, subject to certain conditions, for
a second period of equal length. Under the terms of the Concession, the Company
has the right to use and the obligation to maintain the right of way, track
structure, buildings and related maintenance facilities. Ownership of such
property and fixtures, however, has been retained by the Government.

                                      F-12
<PAGE>

      Concession rights and related assets are summarized as follows:

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                --------------------------   ESTIMATED USEFUL
                                                   2002           2003         LIVES (YEARS)
                                                -----------    -----------   ----------------
<S>                                             <C>            <C>           <C>
Land ........................................   $   132,878    $   132,878         50
Buildings ...................................        33,113         33,113        27-30
Bridges .....................................        75,350         75,350         41
Tunnels .....................................        94,043         94,043         40
Rail ........................................       317,268        317,268         29
Concrete and wood ties ......................       137,351        137,351         27
Yards .......................................       106,174        106,174         35
Ballast .....................................       107,189        107,189         27
Grading .....................................       391,808        391,808         50
Culverts ....................................        14,942         14,942         21
Signals .....................................         1,418          1,418         26
Other .......................................        10,148         10,148        5-50
                                                -----------    -----------
                                                  1,421,682      1,421,682
Accumulated amortization ....................      (257,381)      (297,500)
                                                -----------    -----------
Concession rights and related assets - Net ..   $ 1,164,301    $ 1,124,182
                                                ===========    ===========
</TABLE>

      Amortization of concession rights was $38.9 million in 2001, $38.6 million
In 2002 and $39.8 million in 2003.

      On February 9, 2001, the Ministry of Communications and Transport ("SCT")
issued statement 4.123. Under this statement, the SCT and TFM agreed to transfer
a line of the two-way Griega-Mariscala stretch to the Government in order to be
included in the North Pacific concession. In return for this stretch, TFM
recorded a receivable from the Government in the amount of $85,226, which was
applied against the purchase price of the 24.63% Grupo TFM's capital stock owned
indirectly by the Government through FNM and Nacional Financiera, S.N.C.
("Nafin") (see Note 8). During 2001, the Company recognized a net gain related
with this transaction of approximately $60,744, which was credited to other
(expenses) - net in the combined and consolidated statement of income (see Note
9).

      Government payment was restated in accordance with an appraisal performed
by the "Comision de Avaluos de Bienes Nacionales", until the payment date.

      On February 12, 2001, the SCT modified the Concession title granted to TFM
(i) to transfer the Griega-Mariscala stretch described above, and (ii)
authorized the dismantling of the catenary running over the route between
Huehuetoca, State of Mexico and the city of Queretaro.

NOTE 4 - PROPERTY, MACHINERY AND EQUIPMENT:

      Pursuant to the assets purchase agreement, the Company obtained the right
to acquire locomotives and rail cars and various materials and supplies,
formerly owned by FNM. The Company also agreed to assume the outstanding
indebtedness, as of the commencement of operations, relating to certain
locomotives originally acquired by FNM under capital lease arrangements (see
Note 11). Legal title to the purchased assets was transferred to TFM at that
time.

                                      F-13
<PAGE>

<TABLE>
<CAPTION>
                                   BALANCE AT                       DECEMBER 31, 2003            BALANCE AT
                                  BEGINNING OF             ----------------------------------   BEGINNING OF   ESTIMATED
                                 YEAR - NET OF                         TRANSFER                 YEAR - NET OF   USEFUL
                                  ACCUMULATED                            AND                     ACCUMULATED    LIVES
                                  DEPRECIATION  ADDITIONS  DISPOSALS    OTHERS   DEPRECIATION   DEPRECIATION   (YEARS)
                                 -------------  ---------  ---------  ---------  ------------   -------------  ---------
<S>                              <C>            <C>        <C>        <C>        <C>            <C>            <C>
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
                                 =========      ========    =======   =========     =======       =========
</TABLE>

<TABLE>
<CAPTION>
                                   BALANCE AT                       DECEMBER 31, 2002            BALANCE AT
                                  BEGINNING OF             ----------------------------------   BEGINNING OF   ESTIMATED
                                 YEAR - NET OF                         TRANSFER                 YEAR - NET OF   USEFUL
                                  ACCUMULATED                            AND                     ACCUMULATED    LIVES
                                  DEPRECIATION  ADDITIONS  DISPOSALS    OTHERS   DEPRECIATION   DEPRECIATION   (YEARS)
                                 -------------  ---------  ---------  ---------  ------------   -------------  ---------
<S>                              <C>            <C>        <C>        <C>        <C>            <C>            <C>
Locomotives...................     $ 123,385               $    122                $ 11,619       $ 111,644       14
Freight cars..................        76,905                  4,974                   5,908          66,023      12-16
Machinery of workshop.........         8,499    $     70               $    337       1,906           7,000        8
Machinery of road.............        20,790          14         61       2,747       1,778          21,712       14
Terminal and other equipment..        36,798       1,571        223       3,069       5,687          35,528      1-15
Track improvement.............       195,136       5,518                 40,885       6,770         234,769      15-48
Buildings.....................         5,033         181                    292         138           5,368       20
Overhaul......................        44,092      10,120                              8,966          45,246        8
                                   ---------    --------   --------   ---------    --------       ---------
                                     510,638      17,474      5,380      47,330      42,772         527,290
Land..........................        37,459                     14         162                      37,607
Construction in progress......        20,624      71,881                (48,035)                     44,470
                                   ---------    --------   --------   ---------    --------       ---------
                                   $ 568,721    $ 89,355   $  5,394   ($    543)   $ 42,772       $ 609,367
                                   =========    ========   ========   =========    ========       =========
</TABLE>

      Depreciation of property, machinery and equipment was $39.5 million in
2001, $42.8 million in 2002 and $45.5 million in 2003.

                                      F-14
<PAGE>

NOTE 5 - FINANCING:

      Financing is summarized as follows:

<TABLE>
<CAPTION>
                                             2002                               2003
                                         -----------       DECEMBER 31,      -----------
                                         TRANSACTION  ---------------------  TRANSACTION
                               PROCEEDS     COSTS     BORROWINGS   PROCEEDS     COSTS     BORROWINGS
                               --------  -----------  ----------   --------  -----------  ----------
<S>                            <C>       <C>          <C>          <C>       <C>          <C>
SHORT-TERM DEBT:
Commercial paper (1).......                                        $ 84,953   ($   546)   $   84,407
Current portion of
 long-term debt:
Term loan facility (2).....    $ 18,286                $ 18,286     109,713     (1,380)      108,333
                               --------                --------    --------   --------    ----------
                               $ 18,286                $ 18,286    $194,713   ($ 1,973)   $  192,740
                               ========                ========    ========   ========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                               2002                               2003
                                           -----------       DECEMBER 31,      -----------
                                           TRANSACTION  ---------------------  TRANSACTION
                                PROCEEDS      COSTS     BORROWINGS   PROCEEDS     COSTS     BORROWINGS
                               ----------  -----------  ----------   --------  -----------  ----------
<S>                            <C>         <C>          <C>          <C>       <C>          <C>
LONG-TERM DEBT:
Senior notes due
 2007 (3)..................    $  150,000                $ 150,000   $150,000               $ 150,000
Senior discount
 debentures (4)............       443,501  ($  7,592)      435,909    443,501  ($  6,247)     437,254
Senior notes due 2012 (5)..       177,624    (23,278)      154,346    177,880    (19,945)     157,935
Commercial paper (1).......       121,838     (1,355)      120,483
Term loan facility (2).....       109,714     (1,897)      107,817
                               ----------  ----------    ---------   --------  ---------    ---------
                               $1,002,677  ($ 34,122)    $ 968,555   $771,381  ($ 26,192)   $ 745,189
                               ==========  ==========    =========   ========  =========    =========
</TABLE>

      On September 17, 2002, the total amount of the initial commercial paper
was due and the Company entered into two new bank facilities provided by a
consortium of banks for an aggregate amount of $250 million in order to
refinance the commercial paper program (the "Credit Agreement"). The Company
repaid the remaining $60 million of indebtedness outstanding under the former
commercial paper program.

      According to the Credit Agreement, the Company entered into two new bank
facilities as follows:

      (1)   NEW COMMERCIAL PAPER

      The second and new 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 new commercial paper facility allows the
Company to draw-down advances from time to time, subject to certain terms and
conditions. The obligations of the new commercial paper facility rank at least
pari passu with the other senior unsecured indebtedness.

      The average interest rate for the year ended December 31, 2002 and 2003
was 1.87% and 1.28%, respectively.

      (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, 2002 and 2003 was 4.44% and 3.97%, respectively.

                                      F-15
<PAGE>

      On October 22, 2003 the Company began discussions with the Syndicate
Members towards the refinancing the outstanding balance of the existing $122,000
commercial paper program, including the reduction of such program to a maximum
amount of $85,000 and the required changes to financial covenants to the above
mentioned credit agreements.

      As of March 19, 2004, date of issuance of these combined and consolidated
financial statements the Company is still discussing the terms of the
refinancing of its commercial paper program.

      (3)   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 to $16,167 for
each one of the years ended December 31, 2001, 2002 and 2003.

      (4)   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 semiannually 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 the 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 to $47,763, $53,406 and
$54,796 during 2001, 2002 and 2003, respectively.

      (5)   SENIOR NOTES DUE 2012

      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 8).

      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 capitalized $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
$12,944 and $23,659, for the year ended December 31, 2002 and 2003,
respectively.

      COVENANTS

      The agreements related to the above-mentioned loans include certain
affirmative and negative covenants and maintenance of certain financial
conditions, including, among other things, dividend and other payment
restrictions affecting restricted subsidiaries, limitation of affiliate
transactions and restrictions and asset sales, with which the Company and
subsidiaries were in compliance at December 31, 2002.

                                      F-16
<PAGE>

      On May 2, 2003 the Credit Agreement was amended to restate some covenants
for the term loan facility and the commercial paper program.

      On October 24, 2003 and on March 10, 2004, TFM received a waiver from the
banks which participate in the Credit Agreement of the term loan facility and
the commercial paper program. TFM is now waived from the financial covenants
under such agreement for the three months ended September 30, 2003 and for the
three months ended December 31, 2003, respectively.

      Considering that some financial covenants were breached in 2003, and it is
probable that further breaches will occur within twelve months period of the
balance sheet date, the outstanding long-term loan facility amounting to $71,762
has been reclassified to short-term debt as of December 31, 2003.

      Maturity of long-term debt is as follows:

<TABLE>
<CAPTION>
                                              2002                               2003
                                           -----------      DECEMBER 31,      -----------
                                           TRANSACTION  --------------------  TRANSACTION
                                PROCEEDS      COSTS     BORROWINGS  PROCEEDS     COSTS     BORROWINGS
                               ----------  -----------  ----------  --------  -----------  ----------
<C>                            <C>         <C>          <C>         <C>       <C>          <C>
2004.......................    $  158,408  ($  1,872)   $ 156,536
2005.......................        36,572       (517)      36,055
2006.......................        36,572       (863)      35,709
2007.......................       150,000                 150,000   $150,000               $  745,189
2008 and thereafter........       621,125    (30,870)     590,255
2009 and thereafter........                                          621,381   ($26,192)      595,189
                               ----------  ---------    ---------   --------   --------    ----------
                               $1,002,677  ($ 34,122)   $ 968,555   $771,381   ($26,192)   $  745,189
                               ==========  =========    =========   ========   ========    ==========
</TABLE>

NOTE 6 - FINANCIAL  INSTRUMENTS:

      FUEL SWAP CONTRACTS

      The Company may seek to assure itself of more predictable fuel expenses
through U.S. fuel swap contracts. Hedge positions are also closely monitored to
ensure that they will not exceed actual fuel requirements in any period.

      As of December 31, 2002, the Company had ten swap contracts outstanding
for 5,000,083 gallons of fuel which expired in January and February 2003. The
realized gain was $1,548 and the Company has only recorded at December 31, 2002
a benefit of $1,009 and in 2003 the remaining $539 were recognized.

      As a result of the fuel swaps contracts acquired during 2003, the realized
gain was $849. As of December 31, 2003, the Company did not have any fuel future
contracts.

      FOREIGN EXCHANGE CONTRACTS

      The purpose of the Company's foreign exchange contracts is to limit the
risks arising from its peso denominated monetary assets and liabilities.

      The nature and quantity of any hedging transactions will be determined by
Management of the Company based upon net assets exposure and market conditions.
As of December 31, 2002, the Company had one Mexican peso call options
outstanding in the notional amount of $1.7 million, based on the average rate of
Ps11.0 per dollar. This option expired in May 29, 2003.

      Additionally, as of December 31, 2002, the Company had one forward
contract outstanding in the notional amount of $10 million, based on the
exchange rate of Ps9.769 per dollar. This forward expired on February 13, 2003.

                                      F-17
<PAGE>

      As of December 31, 2003, the Company had two Mexican peso call option
outstanding in the notional amount of $11.8 million and $1.7 million,
respectively, based on the average exchange rate of Ps13.00 and Ps12.50 each one
per dollar. These options will expire in September 8, and May 29, 2004,
respectively. The premium paid was $250 and $40, respectively.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

      The fair values of cash and cash equivalents, accounts receivable,
short-term debt and accounts payable approximate carrying values because of the
short maturity of these financial instruments.

      The related fair value based on the quoted market prices for the Senior
notes due 2007 and SDD or similar issues at December 31, 2002 was $140,625 and
$427,334, and at December 31, 2003 was $142,922 and $446,956, respectively. The
related fair value based on the quoted market prices for the senior notes due
2012 at December 31, 2002 and 2003, was $179,325 and $205,200, respectively. The
carrying amount of commercial paper and term loan facility approximates fair
value due to their variable rates.

NOTE 7 - BALANCES AND TRANSACTIONS WITH  RELATED PARTIES:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           -----------------
                                                            2002      2003
                                                           -------   -------
<S>                                                        <C>       <C>
ACCOUNTS RECEIVABLE:
Terminal Ferroviaria del Valle de Mexico, S.A. de C.V ..             $ 1,550
Other Grupo TMM's subsidiaries .........................   $ 5,316     3,860
                                                           -------   -------
                                                           $ 5,316   $ 5,410
                                                           =======   =======
ACCOUNTS PAYABLE:
KCS ....................................................   $ 1,222   $ 4,345
Terminal Ferroviaria del Valle de Mexico, S.A. de C.V ..     3,479
Other Grupo TMM's subsidiaries .........................     4,474     5,665
                                                           -------   -------
                                                           $ 9,175   $10,010
                                                           =======   =======
</TABLE>

      The most important transactions with related parties are summarized as
follows:

<TABLE>
<CAPTION>
                                 YEAR ENDED DECEMBER 31,
                             --------------------------------
                               2001        2002        2003
                             --------    --------    --------
<S>                          <C>         <C>         <C>
Transportation revenues ..    $ 4,431     $10,375     $13,783
                             ========    ========    ========
Management services ......   ($ 2,500)   ($ 2,500)   ($ 2,500)
                             ========    ========    ========
Other expenses ...........   ($ 9,161)   ($ 9,800)   ($ 8,426)
                             ========    ========    ========
</TABLE>

      TRANSACTIONS WITH SHAREHOLDERS

      A)    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 shall
have the right to participate in the profit, or losses, as the case may be,
derived from the sale by Grupo TFM of 469,000,000 of TFM's shares. The sale of
the shares covered by this agreement shall be made no later than the fifteenth
anniversary of the date of this agreement. In exchange, TFM has transferred to
Grupo TFM an amount equal to $593,438, which Grupo TFM used to make the second
payment of the stock 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 this agreement
shall be applied as follows: (a) first, to return TFM the 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's shares covered by this
agreement, and (c) the remainder, if any, shall be distributed proportionally
between TFM and Grupo TFM up to an amount of $35,000 to $3,195,000

                                      F-18
<PAGE>

depending on the sale date, considering 95% corresponding to TFM and 5% to Grupo
TFM and finally, the remaining amounts, if any, shall be distributed
proportionally between TFM and Grupo TFM, with 50% to each party.

      B)    INTERCOMPANY TRANSACTIONS

      TFM 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, 2002 and 2003, TFM has a non-interest bearing receivable from Grupo
TFM of $68,039 and $67,678 respectively, mainly due for the transfer that TFM
made to Grupo TFM in order to permit that Grupo TFM make the second payment of
the stock purchase agreement.

      C)    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.

      D)    KCS TRANSPORTATION COMPANY ("KCSTC") MANAGEMENT SERVICES AGREEMENT

      The Company and KCSTC, a wholly owned subsidiary of KCS, entered into a
management services agreement pursuant to which KCSTC makes available to the
Company certain railroad consulting and management services 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, KCSTC is
reimbursed for its costs and expenses incurred in the performance of such
services.

      On April 30, 2002, TFM and KCS, as successor in interest through merger
with KCSTC, as well as TFM and Grupo TMM, entered into amendments to the
management services agreements that provides for automatic renewal of the
agreements and compensates KCS and Grupo TMM for their services under the
agreements. The amendments state that KCS and Grupo TMM are entitled to receive
(1) $2,500 paid in nine equal monthly installments beginning in April 2002, as
compensation for services rendered between January 1, 1999 and December 31,
2000; (2) and additional $2,500 in a lump sum payment on or before January 2,
2003 as compensation for services rendered from January 1, 2001 through December
31, 2002; and (3) quarterly service payments, payable in arrears, for the period
beginning January 1, 2003 at an annual rate of $1,250. The management services
agreements are terminable by either party upon 60 days written notice.

NOTE 8 - STOCKHOLDERS' EQUITY:

      TFM's capital stock is variable with a fixed minimum of Ps 50,000 and an
unlimited maximum. The capital stock of TFM is comprised of Series "A" shares,
without par value (the Series "A" shares) and the Series "B" shares, without par
value (the Series "B" shares). The Series "A" shares and the Series "B" shares
are subdivided into classes (each a "Class"), I, II and III. At all times, Class
I Series "A" shares and Class I Series "B" shares shall represent 51% of the
capital stock of the Company, Class II Series "A" shares and Class II Series "B"
shares shall represent 29% of the capital stock of the Company, and Class III
Series "A" shares and Class III Series "B" shares shall represent 20% of the
capital stock of the Company.

      At December 31, 2003, the capital stock of TFM is represented by 1,383,988
(thousands) shares as shown below:

<TABLE>
<CAPTION>
                               SERIES "A" SHARES        SERIES "B" SHARES                TOTAL
                            -----------------------  ------------------------  -------------------------
                                          NUMBER                     NUMBER                    NUMBER
       SHAREHOLDER            AMOUNT    (THOUSANDS)    AMOUNT     (THOUSANDS)    AMOUNT      (THOUSANDS)
-------------------------   ----------  -----------  ----------   -----------  ----------   ------------
<S>                         <C>         <C>          <C>          <C>          <C>          <C>
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
                            ==========    =======    ==========     =======    ==========    =========
</TABLE>

                                      F-19
<PAGE>

      The Series "A" shares can be held only by individuals or companies of
Mexican nationality. The Series "B" shares can be held by individuals or
companies of Mexican and non-Mexican nationality.

      The Class I and Class II Series "A" shares and the Class I and Class II
Series "B" shares are entitled to elect seven of the Company's eight directors,
and their corresponding alternate directors. The Class III Series "A" shares and
Class III Series "B" shares are entitled to elect one of the Company's eight
directors, and his or her alternate director. The voting rights attached to the
Class III shares are limited to the following matters: (i) extension of the
Company's corporate life; (ii) anticipated dissolution of the Company; (iii)
change in the Company's corporate purpose; (iv) change in the Company's
nationality; (v) change in the form of entity of the Company; (vi) merger or
spin-off of the Company; (vii) granting of any guaranty for obligations of third
parties not made in the Company's ordinary course of business; (viii) extension
of credit to third parties not made in the Company's ordinary course of
business; (ix) acquisitions not in furtherance of the Company's corporate
purpose and not made in the Company's ordinary course of business for an amount
exceeding $1 million; (x) cancellation or call by the Company of any series or
subseries of shares where the Class III shareholders have any interest; (xi)
cancellation of the registration of the shares issued by the Company with the
Registro Nacional de Valores e Intermediarios or any other stock exchange where
Class III shares are registered, and (xii) election of the director of the
Company 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 the holders thereof any right to preferred dividends.

      In connection with the original formation of Grupo TFM, the Government
purchased a 24.63% non-voting interest in Grupo TFM for $198.8 million. The
Government also granted the original shareholders of Grupo TFM an option (the
"call option") to purchase the Government's equity interest in Grupo TFM. TFM
has been appointed as the purchaser and, on July 29, 2002, purchased all of the
call option shares for an aggregate purchase price of $256.1 million. The
purchase price for the call option shares was financed through (1) a portion
($162,575) of the proceeds of the issuance of $180,000 of debt securities by TFM
(see Note 5) and approximately $93,555 was applied against note receivables from
the Government. Thus, the shares acquired by TFM are being considered as
treasury shares.

      The Government has retained a 20% interest in TFM's shares and has
reserved the right to sell such shares by October 31, 2003 in a public offering.
In the event that such public offering does not occur by October 31, 2003, Grupo
TFM may purchase the Government's equity interest in TFM at a purchase price
equal to the per share price initially paid by Grupo TFM, indexed based on
Mexican inflation. If Grupo TFM does not purchase the Government TFM interest,
the Government may require Grupo TMM and KCS to purchase the TFM shares at the
price discussed above. (See actual events on Note 11).

      At the Unanimous Resolutions Meeting held on December 24, 2001, the
stockholders of TFM agreed to pay dividends of $33,165, equivalent to $0.0002396
per share.

      On March 26, 2002, a ruling from Mexican Court was issued to annulled
Grupo TFM's Ordinary Stockholders' Meeting held on December 31, 2001. As a
consequence the Unanimus resolutions meeting mentioned above was also annulled,
thus the dividends were cancelled in the combined and consolidated financial
statements as of December 31, 2001, giving retroactive effect to said annulment.
Thus, the amounts paid in this regard were applied against the acquisition of
Mexrail and the purchase of the 24.63% (see Note 1).

      Dividends paid are not subject to income tax if paid from the Net Tax
Profit Account and will be taxed at a rate that fluctuates between 4.62% and 7%
if they arise from the Reinvested Net Tax Profit Account. Any excess over this
account is subject to a tax equivalent to, 49.25% and 47.06% depending on
whether paid in 2004 or 2005, respectively. The tax is payable by the Company
and may be credited against its income tax in the same year or the following two
years. Dividends paid are not subject to tax withholding.

      In the event of a capital reduction, any excess of stockholders' equity
over capital contributions, the latter restated in accordance with the
provisions of the Income Tax Law, is accorded the same treatment as dividends.

                                      F-20
<PAGE>

NOTE 9 - OTHER INCOME (EXPENSES):

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                     ---------------------------------
                                                                       2001        2002        2003
                                                                     ---------   --------    ---------
<S>                                                                  <C>         <C>         <C>
Fees in VAT Lawsuit (1) ..........................................               ($ 6,260)   ($26,701)
Sales of property and equipment - Net ............................   ($  7,585)    (6,897)     (2,909)
Cost of locomotive sublease ......................................      (1,452)    (1,256)     (1,240)
Electric locomotive maintenance ..................................      (2,469)    (2,428)     (2,428)
Gain on sale of Griega Mariscala Line ............................      60,744      2,384
Equity in Terminal Ferroviaria del Valle de Mexico S.A. de C.V ...        (915)     1,269         282
Recoverable income tax ...........................................       2,861                  1,222
Other - Net ......................................................     (16,927)    (6,426)     (3,827)
                                                                     ---------   --------    --------
                                                                      $ 34,257   ($19,614)   ($35,601)
                                                                     =========   ========    ========
</TABLE>

(1)   As a result of the resolution of the courts regarding de 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. Notwithstanding, in accordance with IAS the VAT recovery is a
contingency gain as of December 31, 2003. (See Note 11).

NOTE 10 - INCOME TAX, EMPLOYEES' STATUTORY PROFIT SHARING, ASSET TAX AND TAX
LOSS CARRYFORWARDS:

      INCOME TAX

      TFM and its subsidiaries compute income tax on an individual basis.
However, TFM and its subsidiaries (except Mexrail and its subsidiary) report tax
results to Grupo TMM at the 60% from its holding interest in each subsidiary to
determine Grupo TMM's consolidated tax results. Thus, Arrendadora TFM owes
income tax of $2,551 to Grupo TMM as of December 31, 2003.

      TFM and its subsidiaries had combined losses for income for tax purposes
of $56,536, $396,884 and $232,490 for the years ended December 31, 2001, 2002
and 2003, respectively. The difference between tax losses and book income (loss)
is due principally to the inflation gain or loss recognized for tax purposes,
the difference between book and tax depreciation and amortization,
non-deductible expenses and temporary differences for certain items that are
reported in different periods for financial reporting and income tax purposes.

      The expense for income tax charged to income was as follows:

<TABLE>
<CAPTION>
                                   YEAR ENDED DECEMBER 31,
                                 ---------------------------
                                  2001      2002      2003
                                 -------   -------   -------
<S>                              <C>       <C>       <C>
Current income tax ...........   $    79   $     -   $10,763
Deferred income tax expense ..     2,471    32,033    23,344
                                 -------   -------   -------
Net income tax expense .......   $ 2,550   $32,033   $34,107
                                 =======   =======   =======
</TABLE>

      Reconciliation of the income tax expense (benefit) based on the statutory
income tax rate to recorded income tax expense was as follows:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              ------------------------------------
                                                                2001         2002          2003
                                                              ---------    ---------    ----------
<S>                                                           <C>          <C>          <C>
Income (loss) before income tax                               $ 104,704    $  20,599    ($ 27,320)
                                                              =========    =========    =========
Income tax at 35% in 2001 and 2002 and 34% in 2003            $  36,646    $   7,210    ($  9,289)
(Decrease) increase resulting from: Effects of inflationary      27,006      (41,544)      15,671
 and devaluation components
Indexation of depreciation and amortization                     (39,619)      50,179       31,118
Effects of inflation on tax loss carryforwards                  (25,007)      12,362       (9,765)
Non-deductible expenses                                             965        2,128          578
Change in tax rate from 35% to 32%                                            (1,973)       2,979
Other - Net                                                       2,559        3,671        2,815
                                                              ---------    ---------    ---------
Net deferred income tax expense                               $   2,550    $  32,033     $ 34,107
                                                              =========    =========    =========
</TABLE>

                                      F-21
<PAGE>

      According to the amendments to the Mexican Income Tax Law in 2002, the
income tax rate will decrease one percent per year from 35% starting in 2002 up
to 32% in 2005.

      The components of deferred tax assets and (liabilities) are comprised of
the following:

<TABLE>
<CAPTION>
                                         DECEMBER 31,
                                   -----------------------
                                      2002         2003
                                   ----------   ----------
<S>                                <C>          <C>
Tax-loss carryforwards .........   $ 365,871    $ 462,758
Inventories and provisions .....      31,255       20,597
Machinery and equipment ........     (42,951)     (48,224)
Concession rights ..............    (251,758)    (356,772)
Other ..........................      (5,239)      (4,526)
                                   ---------    ---------
Net deferred income tax asset ..   $  97,178    $  73,833
                                   =========    =========
</TABLE>

      The Company has recognized deferred tax assets related to its tax loss
carryforwards and other items after evaluating the reversal of existing taxable
temporary differences. To the extent that the balance of the deferred tax assets
exceeds the existing temporary differences, Management has evaluated the
recoverability of such amounts by estimating future tax profits expected in the
foreseeable future and the remaining tax loss carryforwards periods which extend
between 2012 through 2046. The tax profits include estimates of profitability
and macroeconomic assumptions which are based on Management's best estimate as
of this date.

      EMPLOYEES' STATUTORY PROFIT SHARING

      Employees' statutory profit sharing is determined by the Company at the
rate of 10% on taxable income, adjusted as prescribed by the Mexican Income Tax
Law. For the years ended December 31, 2001, 2002 and 2003 there was no basis for
employees' statutory profit sharing.

      ASSET TAX

      The Asset Tax Law establishes a tax of 1.8% on the average of assets, less
certain liabilities, which is payable when it exceeds the income tax due for the
years ended December 31, 2001, the Company was not subject to asset tax. There
was no asset tax due in 2002 and 2003.

      TAX LOSS CARRYFORWARDS

      At December 31, 2003, the Company and its subsidiaries had the following
tax loss carryforwards, which under the Mexican Income Tax Law are
inflation-indexed through the date of utilization:

<TABLE>
<CAPTION>
                Inflaxion-indexed
Year in which      amount as of      Year of
 loss arose     December 31, 2003   expiration
-------------   -----------------   ----------
<S>             <C>                 <C>
1996              $    14,130          2046
1997                  185,296          2046
1998                  338,612          2046
1999                    9,049          2046
2000                  160,049          2046
2001                   68,743          2046
2002                  394,183          2012
2003                  272,855          2046
                  -----------
                  $ 1,442,917
                  ===========
</TABLE>

                                      F-22
<PAGE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES:

      COMMITMENTS:

      CONCESSION DUTY

      Under the Concession, the Government has the right to receive a payment
from the Company equivalent to 0.5% of the gross revenue during the first 15
years of the Concession period and 1.25% during the remaining years of the
concession period. For the years ended December 31, 2001, 2002 and 2003 the
concession duty expense amounted to $3,391, $3,267 and $3,599, respectively,
which was recorded as operating expense.

      CAPITAL LEASE OBLIGATIONS

      At December 31, 2002 and 2003, the outstanding indebtedness corresponds to
two land capital leases for a period of ten years, in which TFM has the option
to purchase them at the end of the agreement term.

      LOCOMOTIVE OPERATING LEASES

      In May 1998 and September 1999, the Company entered into operating lease
agreements for 75 locomotives each, which expire over the next 17 and 18 years,
respectively. At the end of the contracts the locomotives will be returned to
the lessor. As of December 31, 2003, the Company had received 150 locomotives.
Rents under these agreements amounted $28.8 million in 2001, $29.1 million in
2002 and $29.1 million in 2003.

      Future minimum payments, by year and in the aggregate, under the
aforementioned leases, are as follows:

<TABLE>
<CAPTION>
                              AT DECEMBER 31,
                            -------------------
YEAR ENDING DECEMBER 31,      2002       2003
                            --------   --------
<S>                         <C>        <C>
2003 .................      $ 29,095
2004 .................        29,135   $ 29,135
2005 .................        29,095     29,095
2006 .................        29,095     29,095
2007 .................        29,095     29,095
2008 and thereafter ..       344,173     29,135
2009 and thereafter ..                  315,038
                            --------   --------
                            $489,688   $460,593
                            ========   ========
</TABLE>

      RAILCARS OPERATING LEASES

      The Company leases certain railcars under agreements which are classified
as operating leases. The term of the contracts fluctuates between 3 and 15
years. Future minimum rental payments under these agreements are as follows:

<TABLE>
<CAPTION>
                              AT DECEMBER 31,
                            -------------------
YEAR ENDING DECEMBER 31,      2002       2003
                            --------   --------
<S>                         <C>        <C>
2003 .................      $ 32,830
2004 .................        18,064   $ 31,930
2005 .................        12,504     15,592
2006 .................        10,012     12,642
2007 .................         9,084     10,433
2008 and thereafter ..        51,143      9,498
2009 and thereafter ..                   40,942
                            --------   --------
                            $133,637   $121,037
                            ========   ========
</TABLE>

                                      F-23
<PAGE>

      LOCOMOTIVES MAINTENANCE AGREEMENTS

      The Company has entered into two locomotive maintenance agreements, which
expire in 2004 and 2018 with third-party contractors. Under current
arrangements, the contractors provide both routine maintenance and major
overhauls at an established rate in a range from four to five hundred dollars
per locomotive per day.

      TRACK MAINTENANCE AND REHABILITATION AGREEMENT

      In May 2000, the Company entered into a track maintenance and
rehabilitation agreement, which expires in 2012. Under this contract, the
contractor provides both routine maintenance and major rehabilitation to the
Celaya - Lazaro Cardenas stretch, which is comprised of approximately 350 miles.
Maintenance and rehabilitation expense amounted to $30.2 million in 2001, $35.6
million in 2002 and $3.4 million in 2003. Under this agreement, the Company will
pay approximately $30 million in the following 9 years.

      FUEL PURCHASE AGREEMENT

      On December 19, 1997, the Company entered into a fuel purchase agreement
with PEMEX Refinacion, under which the Company 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. The term of the agreement is indefinite but
can be terminated for justified cause by each party upon 30 days' notice.

      FUEL FREIGHT SERVICE AGREEMENT

      On October 30, 2002, the Company entered into a freight service agreement
with PEMEX Refinacion, which will expire in 2006. Under this agreement the
Company has the obligation to provide services amounting in pesos (thousands) by
year as shown below:

<TABLE>
<CAPTION>
         MINIMUM        MAXIMUM
        ----------    ----------
<S>     <C>           <C>
2003    Ps 126,264    Ps 315,659
2004        98,769       246,922
2005        98,769       246,922
2006        65,756       164,390
        ----------    ----------
        Ps 389,558    Ps 973,893
        ==========    ==========
</TABLE>

         CONTINGENCIES:

      A)    VALUE ADDED TAX LAWSUIT:

      The Company has filed a claim for the refund of approximately $188 million
(Ps 2,111 million) of value added tax ("VAT") paid in connection with the
Acquisition (see Note 1).

      On September 25, 2002 the Mexican Magistrates Court of the First District
(the "Federal Court") issued its judgment in favor of TFM on the VAT 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 TFM. By a unanimous decision, a three-judge
panel of the Federal Court vacated a prior judgment of the Mexican Fiscal Court
(Tribunal Federal de Justicia Fiscal y Administrativa) and remanded the case to
the Mexican 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 the name of TFM. On December 6, 2002 the upper chamber of the
Mexican Fiscal Court issued a ruling denying TFM's right to receive a value
added tax refund from the Government. On January 8, 2003, TFM was officially
notified of the new judgment of the Fiscal Court and on January 29, 2003, filed
the appropriate appeal.

      On June 11, 2003 the Federal Court issued a judgment in favor of TFM
against the ruling of the Fiscal Court. On July 9, 2003 TFM was formally
notified by a three-judge panel of the Federal Court of its June 11, 2003
judgment, which granted TFM constitutional protection ("amparo") against the
ruling of the Fiscal Court issued on December 6, 2002, which had denied TFM the
right to receive the VAT refund certificate. The Federal Court found

                                      F-24
<PAGE>

that the VAT refund certificate had not been delivered to TFM, and confirmed the
Fiscal Court's determination that TFM had the right to receive the VAT refund
certificate. The Federal Court's ruling stated that the Treasury's decision
denying delivery of the VAT refund certificate to TFM violated the Mexican Law,
and it instructed that the VAT refund certificate be issued to TFM 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 TFM's VAT lawsuit vacating its previous resolution of
December 6, 2002, and in strict compliance with the ruling issued on June 11,
2003, by the Fiscal Court, resolved that TFM had proved its case, and that a
"ficta denial" occurred, declaring such denial null and void as ordered by the
Fiscal Court. On August 25, 2003, TFM was formally notified by the Fiscal Court
of its resolution regarding TFM's 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 TFM under the
terms established by Article 22 of the Mexican Fiscal Code in effect in 1997. On
October 3, 2003 the Mexican Tax Attorney of the Federal Government (Procuraduria
Fiscal de la Federacion) 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
remains in place.

      On January 19, 2004, the Mexican Treasury delivered to TFM, pursuant to
the August 13, 2003 Fiscal Court ruling, a Special VAT Certificate representing
the historical claim amount of Ps2,111 million, or approximately $188 million as
of December 31, 2003. TFM will continue seeking for the additional amounts
representing the effect of inflation and interest on the original claim amount.

      RECENT EVENTS

      On January 20, 2004, the Mexican Fiscal Administration Service ("Servicio
de Administracion Tributaria" or "SAT") issued a provisional attachment of the
Special VAT Certificate, stating that the documents that support the value of
the Special VAT Certificate do not comply with applicable tax requirements. TFM
has publicly stated it will oppose the SAT's action through all possible legal
means.

      In the preliminary summation finding, the SAT noted that the Company, "...
wrongfully declared a VAT receivable for Ps2,111 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. TFM has not made any
reserve for this purported claim as it believes that it has not merits and as of
today, no tax liability has been levied against TFM, as the final summary of the
audit is still pending.

      B)    THE MEXICAN GOVERNMENT PUT

      In October 2003, Grupo TFM requested that a federal judge in Mexico
provide an appropriate interpretation of the Put Agreements. When the Government
opened the Mexican railroad system to private investment, it retained a 20%
equity interest in TFM. The intention was to sell these shares through a public
offering, at such time as the Government considered it appropriate and with
approval of the Comision Nacional Bancaria y de Valores- "CNBV", with the
objective of strengthening the market for public investments in Mexico and
encouraging additional investors to invest in the capital stock of TFM.

      Additionally, TFM's bid contained the following condition: "The franchise
purchasers will be obligated to acquire the equity portion that cannot be placed
in the Bolsa Mexicana de Valores- "BMV", at the initial offering prices plus
respective interest".

      The Company believes that under the Put Agreements, the Government agreed
to comply with the following process in order to sell the equity interest that
the Government retains in TFM:

      1.    Register the TFM shares with the BMV;

      2.    Receive the approval of the CNBV to exercise the put;

                                      F-25
<PAGE>

      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.

      When the above steps are completed, the Government is to notify Grupo TFM
of the number of TFM shares that could not be placed in the equity markets and
is to request that Grupo TFM acquire those shares at the minimum stipulated
price. The Company does not believe that any of the steps described above have
been carried out. As a result, the Company believes that the Government has not
yet completed the steps required for it to request that Grupo TFM acquire the
equity stake in TFM held by the Government; and consequently, the Company
believes that the put is still outstanding until the above conditions and the
VAT claim will be completed and on such date the term of 81 months starts, in
accordance with the agreement dated June 9, 1997.

      The price of the Government's interest, as indexed for Mexican inflation,
as of December 31, 2003 was approximately 1,570.3 million UDIs (representing
Ps5,264 million, or approximately $469.4 million). The estimated fair market
value of the Government's interest as of December 31, 2003 was $475.6 million.
If the Government's put rights were properly exercised and the transaction was
consummated, purchase accounting would apply and goodwill may be recognized for
the excess, if any, of the purchase price over the fair value of the net assets
acquired.

      Nevertheless, and notwithstanding the judicial proceeding initiated by
Grupo TFM in October 2003, on October 31, 2003, the SCT requested that Grupo TFM
confirm whether it intends to purchase the TFM shares subject to the put rights
of the Government. Grupo TFM responded that the purchase of the Government's
shares of TFM was the subject of an ongoing judicial proceeding that had yet to
be resolved. On November 3, 2003, the SCT stated in a communication to Grupo TFM
that it had complied with the requirements for the exercise of its put rights as
set out in the Put Agreements and that all procedures required to execute the
sale of the Government's TFM shares would be made through the SAT.

      Grupo TFM requested that a federal court review the SCT's communications
with respect to the Government's put rights. On December 16, 2003, the Fourth
Administrative District Court issued an injunction ordering the parties to
maintain the status quo pending judicial resolution of the dispute. In order for
the injunction to be effective, the Fourth Administrative District Court
required that Grupo TFM post a bond for the equivalent of six months of interest
on the exercise price of the Government's put option to be calculated at an
interest rate of 6% per annum (approximately Ps160 millions or approximately
$14.3 million at December 31, 2003).

      However, as no further action has been taken by the Government to enforce
its rights in connection with the put shares, Grupo TFM's obligation to post
such a bond is considered discretionary under Mexican law. Consequently, Grupo
TFM has elected, for the time being, not to post the bond so as not to incur
unnecessary expense. Grupo TFM has the right to post the bond at any time while
the amparo proceeding is pending. Grupo TFM will vigorously defend its view that
the Government has not fulfilled the prescribed steps required to exercise its
put rights. Although Grupo TFM believes that it will prevail in legal
proceedings related to these matters, there can be no assurance that it will
prevail.

      In the event that Grupo TFM does not purchase the Government's put, Grupo
TMM and KCS, or either Grupo TMM or KCS, are obligated to purchase the
Government's interest. Grupo TMM and KCS have cross indemnities in the event the
Government requires only one of them to purchase its interest. The cross
indemnities allow the party required to purchase the Government's interest to
require the other party to purchase its pro rata portion of such interest.

      C)    FERROCARRIL MEXICANO, S.A. DE C.V. ("FERROMEX") DISPUTES

      TFM and Ferromex have not been able to agree upon the rates each of them
is required to pay to the other for interline services and haulage and trackage
rights. Therefore, in accordance with TFM's rights under the Mexican railroad
services law and regulations, in February 2001, TFM initiated an administrative
proceeding requesting a determination of such rates by the SCT.

                                      F-26
<PAGE>

      In September 2001, Ferromex filed a legal claim against TFM relating to
the payments that TFM and Ferromex are required to make to each other for
interline services and trackage and haulage rights. TFM believes that this legal
claim is without merit, and that the payments for interline services and
trackage and haulage rights owed to TFM by Ferromex exceed the amount of
payments that Ferromex claims TFM owes to Ferromex for such services and rights.
Accordingly, TFM believes that the outcome of this legal claim will not have a
material adverse effect on the financial condition of TFM. On September 25,
2002, the Third Civil Court of Mexico City rendered its judgment in favor of
TFM. Ferromex appealed the judgment and TFM prevailed in such appeal. Ferromex
went in last resource, to the "amparo" proceedings before Federal Courts, and
obtained a resolution that orders the higher local court to review the case
again exclusively for the interline services. The higher local issued a new
ruling which both, Ferromex and TFM claimed in a new "amparo" proceeding at the
Federal Court, and which is pending resolution. TFM cannot predict whether it
will ultimately prevail.

      In connection with the Ferromex claim, Ferromex temporarily prevented TFM
from using certain short trackage rights which TFM has over a portion of its
route running from Celaya to Silao, which is the site of a General Motors plant
from where TFM transports finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving us
access, and in October 2001, TFM filed a counterclaim against Ferromex relating
to these actions. TFM has also initiated several judicial and administrative
proceedings at the SCT to seek the imposition sanctions on Ferromex for
violations to the trackage rights in the route from Celaya to Silao, which as of
to date have not been resolved.

      TFM has also initiated several administrative and judicial proceedings
(including criminal actions) against Ferromex at the SCT and the relevant
Federal Courts, in connection with its trackage rights in Altamira, Topo
Grande-Chipinque, Guadalajara, Arellano-Chicalote, Ramos Arizpe-Encantada, and
Pedro C. Morales-Cerro de la Silla. TFM cannot predict whether it will
ultimately prevail on such proceedings.

      In March 2002, the SCT issued its ruling in response to TFM's request,
establishing a rate to be charged for trackage rights using the criteria set
forth in the Mexican railroad services law and regulations. TFM is appealing the
ruling and requesting a suspension of the effectiveness of the ruling pending
resolution of its appeal. TFM cannot predict whether it will ultimately prevail.
TFM believes that even if the rates established in the ruling goes into effect
and TFM and Ferromex begin using the long-distance trackage rights over each
other's rail line, this will not have a material adverse effect on TFM's results
of operations. A separate ruling was issued confirming TFM's right to use the
Celaya-Silao stretch of Ferromex track, which was appealed by Ferromex before
Federal Courts obtaining the suspension of such ruling. TFM requested and
obtained an "amparo" proceeding against such suspension and Ferromex appealed
the resolution granting the "amparo" to TFM. The final resolution on the appeal
of Ferromex is pending. TFM cannot predict whether it will ultimately prevail in
this "amparo" proceeding as well as on the main procedure regarding TFM's right
to use the Celaya-Silao stretch of Ferromex track.

      Both Ferromex and TFM have suspended the reconciliation of their balances
in 2003, and have initiated several judicial and administrative proceedings in
connection with the amounts payable to each other for interline services,
haulage and trackage rights. Those procedures continue under litigation and
therefore are pending of final resolution.

      D)    OTHER LEGAL PROCEEDINGS

      -     Several TFM board of directors meetings have taken place since
August 25, 2003. KCS and certain of its representatives have initiated judicial
proceedings in Mexico seeking the nullification of such boards meetings. The
Company believes that KCS's claims in this connection are without merit. At
present, the Company has responded to all claims concerning which the Company
has been served. Although the Company cannot assure the outcome of the
proceedings resulting from these claims, the Company believes that none of the
underlying claims initiated by KCS in Mexico, if ultimately determined in favor
of KCS, will have a material adverse effect on TFM.

      -     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.

                                      F-27
<PAGE>

      -     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 is in the process
of completing this study.

      -     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 12 - RECONCILIATION OF DIFFERENCES BETWEEN IFRS AND U.S. GAAP:

      The Company's combined and consolidated financial statements are prepared
in accordance with IFRS which differ in certain material respects from U.S.
GAAP. The main differences between IFRS and U.S. GAAP, as they relate to the
Company, are summarized in the following pages. An explanation is provided when
considered necessary of the effects on the consolidated net income and on
stockholders' equity.

      a.    RECONCILIATION OF NET INCOME:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                               REFERENCE TO
                                                SUBNOTE d.      2001        2002         2003
                                               ------------   ---------  ----------   ---------
<S>                                            <C>            <C>        <C>          <C>
Net income (loss) under IFRS                                  $ 102,154  ($  11,350)  ($ 61,044)
Deferred income tax (expense) benefit                i           (6,236)    121,687      84,255
Deferred employees' statutory profit sharing         i           (3,066)     26,075      11,528
(expense) benefit
Deferred charges                                    ii             (933)        702
Amortization of deferred charges                    ii                                       34
Depreciation                                       iii                         (459)       (612)
                                                              ---------   ---------    --------
Net income under U.S. GAAP                                    $  91,919   $ 136,655    $ 34,161
                                                              =========   =========    ========
</TABLE>

      b.    RECONCILIATION OF STOCKHOLDERS' EQUITY:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                               REFERENCE TO
                                                SUBNOTE d.        2002         2003
                                               ------------   -----------  ------------
<S>                                            <C>            <C>          <C>
Stockholders' equity under IFRS                               ($1,648,516) ($1,587,472)
Deferred income tax                                   i            33,798      118,053
Deferred employees' statutory profit sharing          i            38,533       50,061
Deferred charges                                     ii              (231)        (197)
Depreciation                                        iii              (459)      (1,071)
Effect on purchase of subsidiary shares             iii            20,557       20,557
                                                              -----------  -----------
Stockholders' equity under U.S. GAAP                           $1,740,714   $1,774,875
                                                              ===========  ===========
</TABLE>

      c.    ANALYSIS OF CHANGES IN STOCKHOLDERS' EQUITY UNDER U.S. GAAP:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                         -------------------------
                                           REFERENCE TO
                                            SUBNOTE d.       2002          2003
                                           ------------  -----------   -----------
<S>                                        <C>           <C>           <C>
Balance at beginning of the year ......                  $ 1,903,599   $ 1,740,714
Effect on purchase of subsidiary shares        iii           (43,410)
Treasury shares .......................                     (256,130)
Net income ............................                      136,655        34,161
                                                         -----------   -----------
Balance at end of the year ............                  $ 1,740,714   $ 1,774,875
                                                         ===========   ===========
</TABLE>

                                      F-28
<PAGE>

      d.    SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP:

            i.    Deferred income tax and employees' statutory profit sharing

      The deferred income tax included in the consolidated financial statements
was calculated in accordance with the IAS-12 (revised) which requires the
recording of deferred taxes for fixed assets and 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 the indexation for tax purposes.

      In Mexico, companies are obligated to pay their employees a portion of the
net income as defined by specific regulations. For U.S. GAAP purposes, deferred
profit sharing liabilities or assets would be recorded for temporary differences
that may arise in the determination of the current liability based on the
statutory rate of 10%. These temporary differences are similar to those that
exist for deferred income tax purposes. IFRS do not require the establishment of
assets or liabilities for these differences.

      The differences in the net deferred income tax and employees' statutory
profit sharing assets determined under U.S. GAAP and IFRS at December 31, 2002
and 2003 are summarized below:

<TABLE>
<CAPTION>
                                          Deferred income           Deferred profit
                                             tax assets              sharing assets
                                       ----------------------    ----------------------
                                          2002        2003         2002         2003
                                       ---------    ---------    ---------    ---------
<S>                                    <C>          <C>          <C>          <C>
Amounts recorded under IFRS ........    $ 97,178     $ 73,833     $      -     $      -
Amount determined under U.S. GAAP ..     130,976      191,886       38,533       50,061
                                       ---------    ---------    ---------    ---------
Net difference .....................   ($ 33,798)   ($118,053)   ($ 38,533)   ($ 50,061)
                                       =========    =========    =========    =========
</TABLE>

Under U.S. GAAP, employees' profit sharing would be considered as operating
expense.

            ii.   Deferred charges

      During 2001, the Company incurred in certain financing costs paid to third
parties which were capitalized under IFRS amounting to $933. Under U.S. GAAP, it
is required that those costs are expensed as incurred.

      Additionally during 2002, the Company incurred in certain expenses related
with the 180,000 senior notes as mentioned in Note 5. Under U.S. GAAP the legal
fees for the exchange of such senior notes amounting to $231 should be expensed
as incurred. Nevertheless, under IFRS these expenses should be capitalized and
amortized over the period of the senior notes. The amortization for the year
ended December 31, 2003 was $34.

            iii.  Mexrail transaction

      As more fully described in Note 1, on March 27,2002, Grupo TMM and KCS
sold their respective interests in Mexrail to TFM for an aggregate purchase
price of $64 million. Under U.S. GAAP, TFM has recorded the transaction pursuant
to SFAS No. 141 "Business Combinations" with partial fair value step-up (49%),
for KCS's investment, being recognized for the assets and liabilities being
acquired. Thus, the amount recorded was $20,557 and the corresponding deferred
income tax (45%) for $9,249, both allocated in fixed assets. During the year
ended December 31, 2003 the depreciation was $612 ($459 for 2002). The portion
sold by Grupo TMM to TFM (51%) amounting to $21.4 million would be accounted for
on a historical carryover basis since both Mexrail and TFM are under the common
control of Grupo TMM.

                                      F-29
<PAGE>

            iv.   Earnings per share

      The weighted average number of shares outstanding for the years ended
December 31, 2001, 2002 and 2003 was 1,383,987,505. The net income per share
(basic and diluted) under U.S. GAAP was $0.066 in 2001, $0.099 in 2002 and
$0.025 in 2003.

            v.    Intangible assets and long-lived assets

      In accordance with IFRS, impairments are recognized using discounted
operating cash flows, while under U.S. GAAP the Company must use undiscounted
cash flows. Under both methods, there is no impairment of intangible assets and
long-lived assets.

            vi.   Deferred financing costs

      For U.S. GAAP purposes costs of issuing debt should be deferred as an
asset and amortized by periodic charges to the income statement using the
interest method over the life of the debt. Under IFRS, those costs are presented
net from the debt proceedings.

            vii.  Effect of recently issued accounting standards as they relate
to the Company

      In April 2003, SFAS No. 149 Amendments to SFAS No. 133 ("SFAS No. 133") on
"Derivative Instruments and Hedging Activities" was issued and is applicable for
contracts entered into or modified after June 30, 2003. The requirements of SFAS
No. 133, as amended by SFAS 149 requires all derivative instruments to be
recognized as either assets or liabilities on the balance sheet, measured at
fair values. The statement permits special hedge accounting for fair value, cash
flow and foreign currency hedges providing specific criteria are met. Certain
aspects of the required hedge criteria do not allow portfolio hedging.

      In May 2003, Statement of Financial Accounting Standard No. 150 ("SFAS
150") "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS 150 improves the accounting for certain free
standing financial instruments that, under previous guidance, issuers could
account for as equity. SFAS 150 requires that certain instruments be classified
as liabilities in the statements of financial position. With the exception of
the deferral of the provisions related to mandatorily redeemable non controlling
interests, SFAS No. 150 is applicable for all financial instruments entered into
or modified after May 31, 2003 and is otherwise applicable at the beginning of
the first interim period after June 15, 2003.

      In January 2003, FIN 46 "Consolidations of Variable Interest Entities"
("FIN 46"), was issued and clarifies the application of Accounting Research
Bulletin No. 51 "Consolidated Financial Statements", to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. These types of entities are referred to as VIEs. For all Special
Purpose Entities ("SPEs") created prior to February 1, 2003, public companies
must apply either the provisions of FIN 46 or early adopt the provisions of FIN
46-R at the end of the first interim or annual reporting period ending after
December 15, 2003 (i. e., as of December 31, 2003 for an entity with a calendar
year-end). If a public company applies FIN 46 for such period, the provisions of
FIN 46-R must be applied as of the end of the first interim or annual reporting
period ending after March 15, 2004. For all non-SPEs created prior to February
1, 2003, public companies will be required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004. For all
entities (regardless or whether the entity is an SPE) that were created
subsequent to January 31, 2003, public companies were already required to apply
the provisions of FIN 46, and should continue doing so unless they elect to
early adopt the provisions of FIN 46-R as of the first interim or annual
reporting period ending after December 15, 2003. If they do not elect to early
adopt FIN 46-R, public companies would be required apply FIN 46-R to these
post-January 31, 2003 entities as of the end of the first interim or annual
reporting period ending after March 15, 2004.

      The Company is currently evaluating the impact, if any, that the adoption
of the above mentioned standards may have on the combined and consolidated
financial statements.

                                      F-30
<PAGE>

      e.    CONDENSED COMBINED AND CONSOLIDATED BALANCE SHEETS AND INCOME
STATEMENTS

      The following condensed combined and consolidated balance sheets and
income statements reflect the effects of the principal differences between IFRS
and U.S. GAAP.

<TABLE>
<CAPTION>
                                                                     CONDENSED COMBINED AND
                                                                   CONSOLIDATED BALANCE SHEETS

                                                                          DECEMBER 31,
                                                                   ---------------------------
                                                                      2002            2003
                                                                   -----------    ------------
<S>                                                                <C>            <C>
Total current assets ...........................................   $   265,222    $   225,714
Long term account receivable ...................................         1,388          1,350
Concession rights and related assets - Net .....................     1,164,301      1,124,182
Property, machinery and equipment - Net ........................       638,714        660,294
Long-term receivable from Grupo TFM ............................       661,477        661,116
Deferred income taxes and employees' statutory profit sharing ..       160,260        233,570
Other non-current assets .......................................        41,847         37,443
                                                                   -----------    -----------
     Total assets ..............................................   $ 2,933,209    $ 2,943,669
                                                                   ===========    ===========

Total short-term liabilities                                       $   147,295    $   362,600
Total long-term liabilities                                          1,045,284        806,660
                                                                   -----------    -----------
     Total liabilities                                               1,192,579      1,169,260
                                                                   -----------    -----------
Minority interest                                                          (84)          (466)
                                                                   -----------    -----------
     Capital stock                                                   1,758,882      1,758,882
Effect on purchase of subsidiary shares                                (21,395)       (21,395)
Treasury shares                                                       (256,130)      (256,130)
Retained earnings                                                      259,357        293,518
                                                                   -----------    -----------
     Total stockholders' equity                                      1,740,714      1,774,875
                                                                   -----------    -----------
     Total liabilities and stockholders' equity                    $ 2,933,209    $ 2,943,669
                                                                   ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                           CONDENSED COMBINED AND CONSOLIDATED
                                                                   STATEMENTS OF INCOME

                                                                 YEARS ENDED DECEMBER 31,
                                                           -----------------------------------
                                                              2001         2002        2003
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Transportation revenues ................................   $ 720,627    $ 712,140    $ 698,528
Cost and expenses ......................................     520,407      539,183      557,330
                                                           ---------    ---------    ---------
Income on transportation ...............................     200,220      172,957      141,198
Other expenses - Net ...................................     (18,902)     (12,717)     (32,692)
                                                           ---------    ---------    ---------
Operating income .......................................     181,318      160,240      108,506
Net financing cost .....................................     (80,613)    (113,323)    (124,876)
                                                           ---------    ---------    ---------
Income (loss) before provision for deferred income taxes
     and minority interest .............................     100,705       46,917      (16,370)
Current income tax .....................................         (79)     (10,763)
Deferred income tax (expense) benefit ..................      (8,707)      89,654       60,911
Minority interest ......................................                       84          383
                                                           ---------    ---------    ---------
Net income for the year ................................   $  91,919    $ 136,655    $  34,161
                                                           =========    =========    =========
</TABLE>

                                      F-31
<PAGE>

NOTE 13 - SUBSEQUENT EVENTS:

      AMENDMENT TO TFM'S TERM LOAN FACILITY AND REFINANCING OF TFM'S COMMERCIAL
      PAPER PROGRAM

      On June 24, 2004, in order to refinance its commercial paper program, TFM
entered into an amendment to its term loan facility which was established on
September 17, 2002. The amendment increased the amount of the term loan facility
to $186.4 million, the proceeds of which will be used to repay amounts
outstanding under TFM's commercial paper program. Under the amended term loan
facility, Dollar-denominated commitments bear interest at a floating rate based
on an adjusted Eurodollar rate plus an applicable Eurodollar margin. Certain
lenders may elect to extend Peso-denominated commitments which bear interest at
a floating rate based on the Tasa de Interes Interbancaria de Equilibrio
published by Banco de Mexico plus an applicable Peso margin. Amounts outstanding
under the amended term loan facility are secured by a first priority conditional
pledge on the locomotives owned by TFM's subsidiary, Arrendadora TFM, S.A. de
C.V.

      Amounts outstanding under the amended term loan facility are payable in
semi-annual installments beginning in September 2004 and ending in September
2006. Certain lenders may elect to make their respective portion of the loan
payable in semi-annual installments beginning in September 2004 and ending in
September 2005. TFM may voluntarily prepay the loan under the amended term loan
facility without penalty provided it gives five business days' notice, subject
to a minimum payment threshold. TFM is required to prepay the loan using excess
cash flow or if it receives 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 Purchase-Sale Agreements dated January 31, 1997
and June 9, 1997.

      The amended term loan facility contains customary covenants, including
limitations on dividends, limitations on investments, limitations on prepayments
of (and amendments to the terms of) other indebtedness, limitations on sale and
leaseback transactions, limitations on assets sales, limitations on the
incurrence of indebtedness, and limitations on affiliate transactions. Under the
amended term loan facility, TFM is also subject to various financial covenants,
including maintaining certain consolidated interest coverage, consolidated fixed
charge coverage and consolidated leverage ratios.

                                      F-32
<PAGE>

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

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Mexico City, March 19, 2004, except for Note 13, which is dated June 24, 2004

To the Board of Directors and Stockholders of
Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.

      We have audited the accompanying combined and consolidated balance sheets
of Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. and subsidiaries as
of December 31, 2003 and 2002, and the related combined and consolidated
statements of income, of changes in stockholders' equity and of cash flows for
each of the three years in the period ended December 31, 2003, all expressed in
US dollars. These combined and consolidated financial statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these combined and consolidated financial statements based on our
audits.

      We conducted our audits in accordance with International Auditing
Standards and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement and that they were prepared in accordance with
International Financial Reporting Standards. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

      In our opinion, the aforementioned combined and consolidated financial
statements present fairly, in all material respects, the combined and
consolidated financial position of Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V. and subsidiaries as of December 31, 2003 and 2002, and the combined
and consolidated results of their operations, the changes in their stockholders'
equity and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with International Financial Reporting
Standards.

      International Financial Reporting Standards vary in certain significant
respects from Accounting Principles Generally Accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 12 to the combined and consolidated financial statements.

PricewaterhouseCoopers

Alberto Del Castillo V. Vilchis
Audit Partner

                                      F-33

<PAGE>
             GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

                    COMBINED AND CONSOLIDATED BALANCE SHEETS

                                    (NOTE 1)
                      (amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                      ------------
                                                                  2002             2003
                                                                  ----             ----
<S>                                                             <C>            <C>
ASSETS
Current assets:
     Cash and cash equivalents ...............................  $    30,249    $     3,597
     Accounts receivable - Net ...............................       90,596        101,595
     Amounts due from related parties (Note 7) ...............        5,316          5,410
     Taxes recoverable .......................................       78,808         51,244
     Other accounts receivable - Net .........................       27,820         34,046
     Materials and supplies ..................................       20,261         16,693
     Other current assets ....................................       12,200         13,157
                                                                -----------    -----------
         Total current assets ................................      265,250        225,742
Long-term account receivable                                          1,388          1,350
Concession rights and related assets - Net (Note 3)               1,215,487      1,174,217
Property, machinery and equipment - Net (Note 4)                    609,367        632,431
Investment held in associate company (Note 2h.)                       7,435          8,020
Other assets                                                            524          1,507
Deferred income taxes (Note 10)                                     100,972         78,845
                                                                -----------    -----------
         Total assets ........................................  $ 2,200,423    $ 2,122,112
                                                                ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term liabilities:
     Current portion of long-term debt (Note 5) ..............  $    18,286    $   192,740
     Current portion of capital lease obligations (Note 11) ..          267            414
     Amounts owed to related parties (Note 7) ................        9,175         10,010
     Suppliers ...............................................       57,236         65,522
     Advance payments from customers .........................        7,055          5,809
     Accounts payable and accrued expenses ...................       55,276         86,268
                                                                -----------    -----------
         Total short-term liabilities ........................      147,295        360,763
                                                                -----------    -----------
Long-term portion of capital lease obligations (Note 11)              1,875          1,556
Long-term debt (Note 5)                                             968,555        745,189
Other long-term liabilities                                          40,735         33,724
                                                                -----------    -----------
         Total long-term liabilities ........................     1,011,165        780,469
                                                                -----------    -----------
         Total liabilities ..................................     1,158,460      1,141,232
                                                                -----------    -----------
Minority interest (Note 2o.)                                        329,619        317,475
                                                                -----------    -----------
Commitments and contingencies (Note 11)
Subsequent events (Note 13)
Stockholders' equity (Note 8):

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 ...........................................       143,802         94,863
                                                                -----------    -----------
         Total stockholders' equity .........................       712,344        663,405
                                                                -----------    -----------
         Total liabilities and stockholders' equity .........   $ 2,200,423    $ 2,122,112
                                                                ===========    ===========
</TABLE>

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

                                      F-34

<PAGE>

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

                 COMBINED AND CONSOLIDATED STATEMENTS OF INCOME

                                 (NOTES 1 AND 7)
         (amounts in thousands of US dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                     -----------------------
                                                                  2001       2002          2003
                                                                  ----       ----          ----
<S>                                                            <C>          <C>          <C>
Transportation revenues                                        $ 720,627    $ 712,140    $ 698,528
                                                               ---------    ---------    ---------
Costs and expenses:
     Salaries, wages and employee benefits .................     128,845      124,413      121,762
     Purchased services ....................................     147,015      163,835      155,594
     Fuel, material and supplies ...........................      68,717       58,594       71,843
     Other costs ...........................................     147,578      129,428      130,769
     Depreciation and amortization .........................      79,496       82,552       86,554
                                                               ---------    ---------    ---------
         Total operating expenses ..........................     571,651      558,822      566,522
                                                               ---------    ---------    ---------
Income on transportation ...................................     148,976      153,318      132,006
                                                               ---------    ---------    ---------
Other income (expenses) - Net (Note 9) .....................      35,572      (19,255)     (35,382)
                                                               ---------    ---------    ---------
Operating income ...........................................     184,548      134,063       96,624
                                                               ---------    ---------    ---------
Interest income ............................................       4,510        4,974        1,509
Interest expense ...........................................     (87,009)    (101,722)    (112,641)
Exchange gain (loss) - Net .................................       2,783      (17,411)     (13,695)
                                                               ---------    ---------    ---------
Net financing cost .........................................     (79,716)    (114,159)    (124,827)
                                                               ---------    ---------    ---------
Income (loss) before provision for deferred income taxes and
     minority interest .....................................     104,832       19,904      (28,203)

Income tax and deferred income tax expense (Note 10) .......      (2,652)     (30,233)     (32,890)
                                                               ---------    ---------    ---------
Income (loss) before minority interest .....................     102,180      (10,329)     (61,093)

Minority interest ..........................................     (20,431)       2,341       12,154
                                                               ---------    ---------    ---------
Net income (loss) for the year .............................   $  81,749   ($   7,988)  ($  48,939)
                                                               =========    =========    =========
Net income (loss) for the year per share (Note 2p.) ........   $    8.12   ($     .89)  ($    6.45)
                                                               =========    =========    =========
</TABLE>

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

                                      F-35

<PAGE>
             GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

     COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
                                 (NOTES 1 AND 8)
                      (amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                 EFFECT ON
                                                                PURCHASE OF
                                                                 SUBSIDIARY     TREASURY      RETAINED
                                                 COMMON STOCK      SHARES        SHARES       EARNINGS        TOTAL
                                                 -----------     ---------      ---------     ---------     ---------
<S>                                              <C>            <C>            <C>            <C>           <C>
Balance at December 31, 2000................     $   807,008     $  17,912                    $  69,763     $ 894,683
Net income for the year.....................                                                     81,749        81,749
                                                 -----------    ----------                    ---------     ---------
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       (33,562)      (204,904)      143,802       712,344
Net loss for the year.......................                                                    (48,939)      (48,939)
                                                 -----------    ----------     ----------     ---------     ---------
Balance at December 31, 2003................     $   807,008    ($  33,562)    ($ 204,904)    $  94,863     $ 663,405
                                                 ===========    ==========     ==========     =========     =========
</TABLE>

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

                                      F-36

<PAGE>

             GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.
               COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    (NOTE 1)
                      (amounts in thousands of US dollars)

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                                  -----------------------
                                                                            2001             2002            2003
                                                                            ----             ----            -----
<S>                                                                       <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year.....................................       $   81,749       $ (7,988)       ($ 48,939)
                                                                          ----------       --------        ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
     Depreciation and amortization.................................           79,496         82,552           86,554
     Amortization of discount on senior unsecured debentures and
         commercial paper..........................................           49,408         23,158              370
     Income tax and deferred income tax expense....................            2,652         30,233           32,890
     Minority interest.............................................           20,431         (2,341)         (12,154)
     Loss on sale of property, machinery and equipment - Net.......            7,585          6,897            2,909
     Gain on transfer of concession rights - Net...................          (60,744)
     Changes in other assets and liabilities:
         Accounts receivable.......................................          (17,697)        12,966          (10,999)
         Other accounts receivable.................................          (24,595)       (36,915)          21,338
         Materials and supplies....................................            1,269          3,068            3,568
         Other current assets......................................           (1,084)        (2,170)            (957)
         Amounts due to related parties............................          (21,289)        (4,180)             741
         Accounts payable and accrued expenses.....................           11,912         13,811           27,269
         Other non-current assets and long-term liabilities........            3,454         (6,345)          (2,926)
                                                                          ----------       --------        ---------
                  Total adjustments................................           50,798        120,734          148,603
                                                                          ----------       --------        ---------
Net cash provided by operating activities..........................          132,547        112,746           99,664
                                                                          ----------       --------        ---------

Cash flows from investing activities:
Investment in Mexrail Inc. ........................................                         (44,000)
Sale of property, machinery and equipment..........................            2,012            642            2,390
Acquisition of property, machinery and equipment...................          (85,245)       (89,355)         (73,121)
Acquisition of treasury shares.....................................                        (162,575)
                                                                          ----------       --------        ---------
Net cash used in investing activities..............................          (83,233)      (295,288)         (70,731)
                                                                          ----------       --------        ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under commercial paper....................................          (25,156)      (340,000)         (37,001)
Proceeds from commercial paper.....................................                         196,738
Proceeds from senior notes.........................................                         175,241
Proceeds from term loan facility...................................                         128,000
Principal payment of term loan facility............................                                          (18,286)
Principal payments under capital lease obligations.................           (4,227)          (298)            (298)
                                                                          ----------       --------        ---------
Net cash (used in) provided by financing activities................          (29,383)       159,681          (55,585)
                                                                          ----------       --------        ---------
Increase (decrease) in cash and cash equivalents...................           19,931        (22,861)         (26,652)
Cash and cash equivalents:
         Beginning of the year.....................................           33,179         53,110           30,249
                                                                          ----------       --------        ---------
         End of the year...........................................       $   53,110       $ 30,249         $  3,597
                                                                          ==========       ========        =========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest.............................       $   28,779       $ 58,525         $ 98,626
                                                                          ==========       ========        =========
NON-CASH TRANSACTIONS:
Due from Mexican Government........................................       $   81,892       $ 93,555
                                                                          ==========       ========
Due from related parties...........................................                        $ 20,000
                                                                                           ========
Assets acquired through capital lease obligation...................       $    2,448                       $     120
                                                                          ==========                       =========
</TABLE>

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

                                      F-37

<PAGE>

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

           NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
          (amounts in thousands of US dollars ($) or thousands of Pesos
                         (Ps), except number of shares)

NOTE 1 - THE COMPANY:

      Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM") was
incorporated on July 12, 1996. In December 1996, Grupo TFM was awarded the right
to acquire (the "Acquisition") an 80% interest in TFM, S.A. de C.V. ("TFM" or
the "Company"), formerly Ferrocarril del Noreste, S.A. de C.V. pursuant to a
stock purchase agreement.

      Grupo TFM is a non-operating holding company with no material assets or
operations other than its investment in the Company, which in turn is the
holding company of Mexrail, Inc. ("Mexrail") and Arrendadora TFM, S.A. de C.V.
("Arrendadora TFM"). The stockholders of Grupo TFM are TMM Multimodal, S.A. de
C.V. ("TMM Multimodal"), an indirect subsidiary of Grupo TMM, S.A. de C.V.
("Grupo TMM"), Nafta Rail, S.A. de C.V. ("Nafta"), an indirectly wholly owned
subsidiary of Kansas City Southern ("KCS") and TFM. See Note 8.

      TFM lines are comprised of approximately 2,638 (excluding the 20 miles of
the Griega-Mariscala stretch, see Note 3) miles of track, which form a
strategically important rail link within Mexico and to the North American Free
Trade Agreement corridor. TFM lines directly link Mexico City and Monterrey (as
well as Guadalajara through trackage rights) with the ports of Lazaro Cardenas,
Veracruz and Tampico and the Mexican/United States border crossings of Nuevo
Laredo-Laredo, Texas and Matamoros-Brownsville, Texas.

      Approximately 71% of the Company's employees are covered under a
collective bargaining agreement dated July 1, 2001. Under this labor agreement,
the compensation terms of the collective bargaining agreement are subject to
renegotiation on an annual basis, whereas all other terms are to be renegotiated
every two years.

      On February 27, 2002, Grupo TMM and KCS announced that they had agreed to
sell Mexrail (a US company), and its wholly owned subsidiary, the Tex-Mex
Railway, to TFM for an aggregate price of $64 million ($32.6 million to Grupo
TMM and $31.4 million to KCS). The sale was completed on March 27, 2002 and the
purchase price was paid by crediting an account receivable amounting to $20,000
due from Grupo TMM, and the remaining balance of $44,000 was paid in cash. As a
result, Mexrail, Inc., with its wholly owned subsidiary, the Tex-Mex Railway,
became wholly owned subsidiaries of TFM. TFM now controls the operation and
dispatching of the entire international rail bridge.

      The purchase of Mexrail by TFM was accounted for at historical cost in a
manner similar to a pooling of interests because it is considered a business
reorganization among companies within the same control group. As a result, all
the assets and liabilities acquired by TFM were recorded at their historical
cost. The transaction resulted in a reduction of stockholders' equity, at TFM
level amounting to $41,952 representing the difference between the historical
carrying value of the assets and liabilities acquired and the purchase price of
$64,000. Thus, the transaction in Grupo TFM was accounted as a reduction of
stockholders' equity amounting to $33,562 and to minority interest amounting to
$8,390.

      Since the above sale of Mexrail to TFM was a transaction between entities
under common control, the transaction, for financial reporting purposes, has
been retroactively restructured for all the previous periods on a historical
cost basis in a manner similar to a pooling of interest.

      Arrendadora TFM was incorporated on September 27, 2002 under the Mexican
Law regulations and its only operation is the leasing to TFM of the locomotives
and cars acquired through the privatization previously transferred by TFM
(locomotives in 2002 and cars in 2003). Arrendadora TFM is a subsidiary of TFM.

      On May 9, 2003, TFM sold its 51% interest in Mexrail and its wholly owned
subsidiary the Tex-Mex Railway, to KCS for 32.6 million. The Mexrail stock sold
was to remain in an independent voting trust pending approval of the transaction
by the U.S. Surface Transportation Board ("STB"). Within two years of the date
of this

                                      F-38

<PAGE>

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. Since the sale was conditional on obtaining approval of the transaction by
the STB, TFM recognized a liability for the net present value of the purchase
price. Proceeds from the sale were re-invested in TFM. In September 2003, TFM
reacquired for $32.6 million the shares previously transferred to KCS, and the
related liability was canceled.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      Grupo TFM and subsidiaries prepare their financial statements in
accordance with International Financial Reporting Standards ("IFRS") expressed
in U.S. dollars, which differ in certain material respects from those under
United States of America Generally Accepted Accounting Principles ("U.S. GAAP").
See Note 12. The most significant accounting policies are described below.

      a.    CONSOLIDATION

      The consolidated financial statements include the accounts of Grupo TFM
and its subsidiaries. All intercompany balances and transactions have been
eliminated.

      b.    TRANSLATION

      Although Grupo TFM and subsidiaries are required to maintain for tax
purposes their books and records in Mexican pesos ("Ps"), except Mexrail and its
subsidiary, Grupo TFM and subsidiaries keep records and use the US dollar as
their functional and reporting currency.

      Monetary assets and liabilities denominated in Mexican pesos are
translated into US dollars using current exchange rates. The difference between
the exchange rate on the date of the transaction and the exchange rate on the
settlement date, or balance sheet date if not settled, is included in the income
statement as a foreign exchange gain/loss. Non-monetary assets or liabilities
originally denominated in Mexican pesos are translated into US dollars using the
historical exchange rate at the date of the transaction. Capital stock
transactions and minority interest are translated at historical rates. Results
of operations are mainly translated at the monthly average exchange rates.
Depreciation and amortization of non-monetary assets are translated at the
historical exchange rate.

      c.    CASH AND CASH EQUIVALENTS

      Cash and cash equivalents represent highly liquid interest-bearing
deposits and investments with an original maturity of less than three months.

      d.    ACCOUNTS RECEIVABLE

      Accounts receivable are carried at original invoice amount less provision
made for impairment of these receivables. A provision for impairment of trade
receivables is established when there is objective evidence that the Company
will not be able to collect all amounts due according to the original terms of
receivables.

      e.    MATERIALS AND SUPPLIES

      Materials and supplies, consisting mainly of fuel and items for
maintenance of property and equipment, are valued at the lower of the average
cost and net realizable value.

      f.    CONCESSION RIGHTS AND RELATED ASSETS

      Costs incurred by the Company to acquire the concession rights and related
assets were capitalized and are amortized on a straight-line basis over the
estimated useful lives of the related assets and rights acquired (see Notes 3
and 4). The purchase price to acquire the concession rights and related assets
was allocated to the identifiable assets acquired and liabilities assumed in
connection with the privatization process (see Note 3) based on their estimated
fair value.

                                      F-39

<PAGE>

      The assets acquired and liabilities assumed include:

            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.  Capital lease obligations assumed.

      g.    PROPERTY, MACHINERY AND EQUIPMENT

      Machinery and equipment acquired through the asset purchase agreement were
initially recorded at their estimated fair value. Subsequent acquisitions are
stated at cost. Depreciation is calculated by the straight-line method based on
the estimated useful lives of the respective fixed assets (see Note 4).

      Recurring maintenance and repair expenditures are charged to operating
expenses as incurred. The cost of locomotives rebuilt is capitalized and is
amortized over the period in which benefits are expected to be received (eight
years).

      h.    INVESTMENT HELD IN ASSOCIATE COMPANY

      TFM's 25% interest in the Mexico City rail terminal is accounted for using
the equity method of accounting. For the years ended December 31, 2001, 2002 and
2003, the equity in the loss (income) of Mexico City rail terminal amounted
$915, ($1,269) and ($282), respectively and is included in other income
(expenses)-net in the combined and consolidated statements of income (see Note
9).

      i.    DEFERRED INCOME TAX

      Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax basis of assets and liabilities
and their carrying amounts in the financial statements. Currently enacted tax
rates are used in the determination of deferred income tax.

      Deferred tax assets are recognized to the extent that it is probable that
future taxable profit against which the temporary differences can be utilized,
will be available.

      Deferred income tax is provided on temporary differences arising on
investments in subsidiaries and associates, except where the timing of the
reversal of the temporary difference can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable future.

      j.    BORROWINGS

      Borrowings are recognized initially as the proceeds received, net of
transactions costs incurred. Borrowings are subsequently stated at amortized
cost using the effective yield method; any difference between proceeds (net of
transactions costs) and the redemption value is recognized in the income
statements over the period of the borrowings.

      k.    SENIORITY PREMIUMS

      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. Starting in 2002, the Company recognized the seniority
premiums based on actuarial computations. At December 31, 2002 and 2003, the
Company had a provision of $778 and $847, respectively, which is included in
other long-term liabilities in the combined and consolidated balance sheets.

                                      F-40

<PAGE>

      Other compensations based on length of service to which employees may be
entitled in the event of dismissal, in accordance with the Mexican Federal Law,
are charged to the statement of income in the year in which they become payable.

      l.    REVENUE RECOGNITION

      Revenue is recognized proportionally as a shipment moves from origin to
destination.

      m.    INTANGIBLE ASSETS AND LONG-LIVED ASSETS

      The carrying value of intangible assets and long-lived assets are
periodically reviewed by the Company and impairments are recognized whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. An impairment loss is recognized for the amount by which the
carrying amount of the assets exceeds its recoverable amount, which is the
higher of an asset's net selling price and its value in use. For the purpose of
assessing impairment, assets are grouped at the lowest level for which there are
separately identifiable discounted cash flows.

      n.    LEASES

      Leases of property, machinery and equipment where the Company has
substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalized at the inception of the lease at the
lower of the fair value of the leased property and the present value of the
minimum lease payments. Each lease payment is allocated between the liability
and finance charges so as to achieve a constant rate on the finance balance
outstanding. The interest element of the finance cost is charged to the income
statement over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period.

      Leases where the lessor retains a significant portion of the risks and
rewards of ownership are classified as operating leases. Payments made under
operating leases are charged to the income statement on a straight-line basis
over the period of the lease.

      o.    MINORITY INTEREST

      The minority interest reflects the 20% share of the Company held by the
Government.

      p.    NET INCOME (LOSS) PER SHARE

      Net income (loss) per share is calculated based on the weighted average
number of shares outstanding during the year. The weighted average number of
shares outstanding for the years ended December 31, 2001, 2002 and 2003 was
10,063,570; 9,011,069 and 7,585,100, respectively.

      q.    USE OF ESTIMATES

      The preparation of the combined and consolidated financial statements
requires Management to make estimates and assumptions that could affect the
reported amounts of assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.

      r.   FINANCIAL RISK MANAGEMENT

           i. Financial risk factors

      The Company enters into financial and commodity derivative instruments
as a part of its risk management program including currency exchange contracts,
interest rate arrangements and U.S. based fuel futures. These contracts are
marked to market and accordingly gains and losses related to such transactions
are recognized in results of operations on a monthly basis. See Note 6.

                                      F-41

<PAGE>

           ii.  Foreign exchange risk

      TFM operates internationally and is exposed to foreign exchange risk
arising from exposure primarily with respect to the Mexican peso.

      At December 31, 2003 Grupo TFM had monetary assets and liabilities
denominated in Mexican pesos of Ps1,325 million and Ps261 million (Ps1,292
million and Ps414 million, at December 31, 2002), respectively. At December 31,
2002 and 2003 the exchange rate was Ps10.45 and Ps11.23 per US dollar,
respectively. At March 19, 2004, date of issuance of these combined and
consolidated financial statements, the exchange rate was Ps10.98 per US dollar.

           iii. Interest-rate risk

      The Company's income and operating cash flows are substantially
independent of changes in market interest rates. The interest rates of the
finance leases to which TFM is lessor are fixed at the inception of the lease.
TFM's policy is to maintain approximately 75% of its borrowings in fixed-rate
instruments. At the year and December 31, 2002 and 2003 75% and 80% were at
fixed rates.

           iv.  Concentration of risk

      Over 19.4% of the Company's transportation revenues are generated by the
automotive industry, which is made up of a relatively small number of customers.
In addition, the Company's largest customer accounted for approximately 10% of
transportation revenues. The Company performs ongoing credit valuations of its
customers' financial conditions and maintains a provision for impairment of
those receivables.

      s.    RECLASSIFICATIONS

      Certain figures of the years 2001 and 2002 were reclassified according to
2003 figures.

      t.    NEW ACCOUNTING PRONOUNCEMENTS

      The International Accounting Standards Board ("IASB") on December 18, 2003
revised International Accounting Standards ("IAS") 1, 2, 8, 10, 16, 17, 21, 24,
27, 28, 31, 33 and 40 and gave notice of the withdrawal of IAS 15. The revised
standards mark the near-completion of the IASB's improvement project.

      The project addressed concerns, questions and criticism raised by
securities regulators and other interested parties about the existing set of
IASs. The project brings:

      -     Removal of some options (i. e. allowed alternatives)

      -     Better reporting through convergence

      -     New guidance and disclosures

      Improved versions of two further standards (IAS 32 and IAS 39) were also
revised by the Board as part of its improvements project and issued on December
17, 2003.

      The effective date for the amended standards is for financial periods
beginning on or after January 1, 2005. Earlier adoption is permitted.

      On February 19, 2004, the IASB published IFRS 2, "Share-based Payment".
Effective date is for periods beginning on or after January 1, 2005. IFRS 2
replaces the IAS 19 disclosure requirements for equity compensation benefits.
The IFRS 2 requires an entity to recognize share-based payment transactions in
its financial statements, including transactions with employees or other parties
to be settled in cash, other assets or equity instruments of the entity. The
standard sets out measurement principles and specific requirements for three
types of share-based payment transactions: equity-settled share-based payment
transactions; cash-settled share-based transactions and with settlement
alternatives.

      Management is currently evaluating the impact, if any, of the adoption of
the above-mentioned standards.

                                      F-42

<PAGE>

NOTE 3 - CONCESSION RIGHTS AND RELATED ASSETS:

      In December 1996, the Mexican Government (the "Government") granted TFM
the Concession (the "Concession") to operate the northeast rail lines for an
initial period of fifty years, exclusive for thirty years, renewable, subject to
certain conditions, for a second period of equal length.

      Under the terms of the Concession, the Company has the right to use and
the obligation to maintain the right of way, track structure, buildings and
related maintenance facilities. Ownership of such property and fixtures,
however, has been retained by the Government.

      Concession rights and related assets are summarized below:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,              ESTIMATED USEFUL
                                                                  2002              2003            LIVES (YEARS)
                                                                  ----              ----          -----------------
<S>                                                            <C>               <C>              <C>
Land.....................................................      $    132,878      $    132,878            50
Buildings................................................            33,113            33,113          27-30
Bridges..................................................            75,350            75,350            41
Tunnels..................................................            94,043            94,043            40
Rail.....................................................           317,268           317,268            29
Concrete and wood ties...................................           137,351           137,351            27
Yards....................................................           106,174           106,174            35
Ballast..................................................           107,189           107,189            27
Grading..................................................           391,808           391,808            50
Culverts.................................................            14,942            14,942            21
Signals..................................................             1,418             1,418            26
Other....................................................            61,792            61,792           5-50
                                                               ------------      ------------
                                                                  1,473,326         1,473,326
Accumulated amortization.................................          (257,839)         (299,109)
                                                               ------------      ------------
Concession rights and related assets - Net...............      $  1,215,487      $  1,174,217
                                                               ============      ============
</TABLE>

      Amortization of concession rights was $40.0 million, $40.2 million, and
$41.0 for the years ended December 31, 2001, 2002 and 2003, respectively.

      On February 9, 2001 the Ministry of Communications and Transport ("SCT")
issued statement 4.123. Under this statement, the SCT and TFM agreed to transfer
a line of the two-way Griega-Mariscala stretch to the Government in order to be
included in the North Pacific concession. In return for this stretch, TFM
recorded a receivable from the Government in the amount of $85,226, which was
applied against the purchase price of the 24.63% Grupo TFM's capital stock owned
indirectly by the Government through Ferrocarriles Nacionales de Mexico ("FNM")
and Nacional Financiera, S.N.C. ("Nafin") (see Note 8). During 2001, the Company
recognized a net gain related with this transaction of approximately $60,744,
which was credited to other income (expenses)-net in the combined and
consolidated statement of income (see Note 9).

      Government payment was restated in accordance with an appraisal performed
by the "Comision de Avaluos de Bienes Nacionales", until the payment date.

      On February 12, 2001, the SCT modified the Concession title granted to TFM
(i) to transfer the Griega-Mariscala stretch described above, and (ii)
authorized the dismantling of the catenary running over the route between
Huehuetoca, State of Mexico and the City of Queretaro.

NOTE 4 - PROPERTY, MACHINERY AND EQUIPMENT:

      Pursuant to the asset purchase agreement, the Company obtained the right
to acquire locomotives and rail cars and various materials and supplies,
formerly owned by FNM. The Company also agreed to assume the outstanding
indebtedness, as of the commencement of operations, relating to certain
locomotives originally acquired

                                      F-43

<PAGE>

by FNM under capital lease arrangements (see Note 11). Legal title to the
purchased assets was transferred to TFM at that time.

<TABLE>
<CAPTION>

                                                                          2003
                                  --------------------------------------------------------------------------------------
                                   Balance at
                                   beginning                                                    Balance at
                                   of year -                                                    end of year   Estimated
                                     net of                                                     - net of       useful
                                  accumulated                           Transfer               accumulated     lives
                                  depreciation  Additions Disposals    and others Depreciation depreciation    (years)
                                  ------------  --------- ---------    ---------- ------------ ------------   ---------
<S>                               <C>           <C>       <C>          <C>        <C>          <C>            <C>
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
                                   ==========    ========  ========     ========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                          2002
                                  ---------------------------------------------------------------------------------------
                                  Balance at
                                   beginning                                                   Balance at
                                   of year -                                                   end of year     Estimated
                                    net of                                                      - net of         useful
                                  accumulated                         Transfer                  accumulated      lives
                                 depreciation  Additions  Disposals  and others  Depreciation  depreciation     (years)
                                 ------------  ---------  ---------  ----------  ------------  ------------    ---------
<S>                              <C>           <C>        <C>        <C>         <C>           <C>             <C>
Locomotives...................    $  123,385              $      122              $    11,619  $    111,644       14
Freight cars..................        76,905                   4,974                    5,908        66,023     12 - 16
Machinery of workshop.........         8,499    $     70               $     337        1,906         7,000        8
Machinery of road.............        20,790          14          61       2,747        1,778        21,712       14
Terminal and other equipment..        36,798       1,571         223       3,069        5,687        35,528      1 - 15
Track Improvement.............       195,136       5,518                  40,885        6,770       234,769     15 - 48
Buildings.....................         5,033         181                     292          138         5,368       20
Overhaul......................        44,092      10,120                                8,966        45,246        8
                                  ----------    --------  ----------   ---------  -----------  ------------
                                     510,638      17,474       5,380      47,330       42,772       527,290
Land..........................        37,459                      14         162                     37,607
Construction in progress......        20,624      71,881                 (48,035)                    44,470
                                  ----------    --------  ----------   ---------  -----------  ------------
                                  $  568,721    $ 89,355  $    5,394  ($     543) $    42,772  $    609,367
                                  ==========    ========  ==========   =========  ===========  ============
</TABLE>

Depreciation of property, machinery and equipment was $39.5 million in 2001,
$42.8 million in 2002 and $45.5 in 2003.

NOTE  5 - FINANCING:

      Financing is summarized as follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                    -----------------------------------------------------------------------------------
                                                    2002                                       2003
                                    --------------------------------------      ---------------------------------------
                                                 Transaction                                 Transaction
                                    Proceeds        costs       Borrowings      Proceeds        costs       Borrowings
                                    --------        -----       ----------      --------        -----       ----------
<S>                                 <C>          <C>            <C>             <C>          <C>            <C>
SHORT-TERM DEBT:

Commercial paper (1)..........                                                  $  84,953     ($    546)    $  84,407

CURRENT PORTION OF LONG-TERM DEBT:
Term loan facility (2)........      $  18,286                   $  18,286         109,713        (1,380)      108,333
                                    ---------    ------------   ---------       ---------      --------     ---------
                                    $  18,286                   $  18,286       $ 194,713     ($  1,973)    $ 192,740
                                    =========    ============   =========       =========      ========     =========
</TABLE>

                                      F-44

<PAGE>

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                    -----------------------------------------------------------------------------------
                                                    2002                                       2003
                                    -----------------------------------------    --------------------------------------
                                                  Transaction                                 Transaction
                                     Proceeds        costs         Borrowings    Proceeds        costs       Borrowings
                                     --------        -----         ----------    --------        -----       ----------
<S>                                 <C>           <C>              <C>           <C>           <C>           <C>
LONG-TERM DEBT:
Senior notes due 2007 (3).......    $  150,000                     $ 150,000     $ 150,000                   $ 150,000

Senior discount debentures (4)..       443,501    $    (7,592)
Senior notes due 2012 (5).......       177,624        (23,278)       435,909       443,501     ($  6,247)      437,254
Commercial paper (1)............       121,838         (1,355)       154,346       177,880       (19,945)      157,935
                                                                     120,483

Term loan facility (2)..........       109,714         (1,897)       107,817
                                    ----------    -----------      ---------     ---------      --------     ---------
                                    $1,002,677   ($    34,122)     $ 968,555     $ 771,381     ($ 28,312)    $ 745,189
                                    ==========    ===========      =========     =========      ========     =========
</TABLE>

      On September 17, 2002, the total amount of the initial commercial paper
was due and the Company entered into two new bank facilities provided by a
consortium of banks for an aggregate amount of $250 million in order to
refinance the initial commercial paper program (the "Credit Agreement"). The
Company repaid the remaining $60 million of indebtedness outstanding under the
former commercial paper program.

      According to the Credit Agreement, the Company entered into two new bank
facilities as follows:

      (1)   NEW COMMERCIAL PAPER

      The second and new 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 new commercial paper facility allows the
Company to draw-down advances from time to time, subject to certain terms and
conditions. The obligations of the new commercial paper facility rank at least
pari passu with the other senior unsecured indebtedness.

      The average interest rate for the year ended December 31, 2002 and 2003
was 1.87% and 1.28%, respectively.

      (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, 2002 and 2003 was 4.44% and 3.97%, respectively.

      On October 22, 2003, the Company began discussions with the Syndicate
Members towards the refinancing the outstanding balance of the existing $122,000
commercial paper program, including the reduction of such program to a maximum
amount of $85,000 and the required changes to financial covenants to the above
mentioned credit agreements.

      As of March 19, 2004, date of issuance of these combined and consolidated
financial statements the Company is still discussing the terms of the
refinancing of its commercial paper program.

      (3)   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, 2001, 2002 and 2003.

      (4)   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,

                                      F-45

<PAGE>

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 $47,763, $53,406 and
$54,796 during 2001, 2002 and 2003, respectively.

      (5)   SENIOR NOTES DUE 2012

      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 option shares in Grupo TFM held by
the Government (see Note 8).

      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 capitalized $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
$12,944 and $23,659, for the years ended December 31, 2002 and 2003,
respectively.

      COVENANTS

      The agreements related to the above-mentioned loans include certain
affirmative and negative covenants and maintenance of certain financial
conditions, including, among other things, dividend and other payment
restrictions affecting restricted subsidiaries, limitation on affiliate
transactions and restrictions and asset sales, with which Grupo TFM and
subsidiaries were in compliance at December 31, 2002.

      On May 2, 2003 the Credit Agreement was amended to restate some covenants
for the term loan facility and the commercial paper program.

      On October 24, 2003 and on March 10, 2004, TFM received a waiver from the
banks which participate in the Credit Agreement of the term loan facility and
the commercial paper program. TFM is now waived from the financial covenants
under such agreement for the three months ended September 30, 2003 and for the
three months ended December 31, 2003, respectively.

      Considering that some financial covenants were breached in 2003, and it is
probable that further breaches will occur within twelve months period of the
balance sheet date, the outstanding long-term loan facility amounting to $71,762
has been reclassified to short-term debt as of December 31, 2003.

                                      F-46

<PAGE>

      Maturity of long-term debt is as follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                    -----------------------------------------------------------------------------------
                                                      2002                                      2003
                                    ----------------------------------------    ---------------------------------------
                                                   Transaction                                 Transaction
                                     Proceeds         costs       Borrowings    Proceeds        costs       Borrowings
                                     --------         -----       ----------    --------        -----       -----------
<S>                                 <C>             <C>           <C>           <C>            <C>          <C>
2004..........................      $   58,408      ($  1,872)    $ 156,536
2005..........................          36,572           (517)       36,055
2006..........................          36,572           (863)       35,709
2007..........................         150,000                      150,000     $ 150,000                   $ 150,000
2008 and thereafter...........         621,125        (30,870)      590,255
2009 and thereafter...........                                                    621,381     ($ 26,192)      595,189
                                    ----------      ---------     ---------     ---------     ---------     ---------
                                    $1,002,677      ($ 36,660)    $ 968,555     $ 771,381     ($ 26,192)    $ 745,189
                                    ==========      =========     =========     =========     =========     =========
</TABLE>

NOTE 6 - FINANCIAL INSTRUMENTS:

      FUEL  SWAP CONTRACTS

      The Company may seek to assure itself of more predictable fuel expenses
through U.S. fuel swap contracts. Hedge positions are also closely monitored to
ensure that they will not exceed actual fuel requirements in any period.

      As of December 31, 2002, the Company had ten swap contracts outstanding
for 5,000,083 gallons of fuel which expired in January and February 2003. The
realized gain was $1,548 and the Company has only recorded at December 31, 2002
a benefit of $1,009 and in 2003 the remaining $539 were recognized.

      As a result of the fuel swaps contracts acquired during 2003, the realized
gain was $849. As of December 31, 2003, the Company did not have any fuel future
contracts.

      FOREIGN EXCHANGE CONTRACTS

      The purpose of the Company's foreign exchange contracts is to limit the
risks arising from its peso-denominated monetary assets and liabilities.

      The nature and quantity of any hedging transactions will be determined by
Management of the Company based upon net assets exposure and market conditions.
As of December 31, 2002, the Company had one Mexican peso call option
outstanding in the notional amount of $1.7 million, based on the average
exchange rate of Ps11.0 per dollar. This option expired in May 29, 2003.

      Additionally, as of December 31, 2002, the Company had one forward
contract outstanding in the notional amount of $10 million, based on the
exchange rate of Ps9.769 per dollar. This forward expired on February 13, 2003.

      As of December 31, 2003, the Company had two Mexican peso call options
outstanding in the notional amount of $11.8 million and $1.7 million,
respectively, based on the exchange rate of Ps13.00 and Ps12.50 each one per
dollar. These options will expire on September 8, and May 29, 2004,
respectively. The premium paid was $250 and $40, respectively.

      FAIR  VALUE OF FINANCIAL INSTRUMENTS

      The fair values of cash and cash equivalents, accounts receivable,
short-term debt and accounts payable approximate carrying values because of the
short maturity of these financial instruments.

      The related fair value based on the quoted market prices for the Senior
notes due 2007 and SDD or similar issues at December 31, 2002 was $140,625 and
$427,334, and at December 31, 2003 was $142,922 and $446,956, respectively. The
related fair value based on the quoted market prices for the senior notes due
2012 at December 31, 2002 and 2003 was $179,325 and $205,200, respectively. The
carrying amount of commercial paper and term loan facility approximates fair
value due to their variable rates.

                                      F-47

<PAGE>

NOTE 7 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES:

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                        ------------
                                                                                      2002           2003
                                                                                      ----           ----
<S>                                                                                 <C>            <C>
ACCOUNTS RECEIVABLE:
Terminal Ferroviaria del Valle de Mexico, S.A. de C.V. .....................                       $   1,550
Other Grupo TMM's subsidiaries..............................................        $  5,316           3,860
                                                                                    --------       ---------
                                                                                    $  5,316       $   5,410
                                                                                    ========       =========
ACCOUNTS PAYABLE:
KCS.........................................................................        $  1,222       $   4,345
Terminal Ferroviaria del Valle de Mexico, S.A. de C.V. .....................           3,479
Other Grupo TMM's subsidiaries..............................................           4,474           5,665
                                                                                    --------       ---------
                                                                                    $  9,175       $  10,010
                                                                                    ========       =========
</TABLE>

     The most important transactions with related parties are summarized as
follows:

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                                -----------------------
                                                                        2001          2002            2003
                                                                        ----          ----            ----
<S>                                                                  <C>           <C>             <C>
Transportation revenues...........................................    $   4,431     $  10,375       $  13,783
                                                                     ==========    ==========      ==========
Management services...............................................   ($   2,500)   ($   2,500)     ($   2,500)
                                                                     ==========    ==========      ==========
Other expenses....................................................   ($   9,161)   ($   9,800)     ($   8,426)
                                                                     ==========    ==========      ==========
</TABLE>

            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.

            KCS   TRANSPORTATION COMPANY ("KCSTC") MANAGEMENT SERVICES AGREEMENT

      The Company and KCSTC, a wholly owned subsidiary of KCS, entered into a
management services agreement pursuant to which KCSTC makes available to the
Company certain railroad consulting and management services 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, KCSTC is to be
reimbursed for its costs and expenses incurred in the performance of such
services.

      On April 30, 2002, TFM and KCS, as successor in interest through merger
with KCSTC, as well as TFM and Grupo TMM, entered into amendments to the
management services agreements that provides for automatic renewal of the
agreements and compensates KCS and Grupo TMM for their services under the
agreements. The amendments state that KCS and Grupo TMM are entitled to receive
(1) $2,500 paid in nine equal monthly installments beginning in April 2002, as
compensation for services rendered between January 1, 1999 and December 31,
2000; (2) and additional $2,500 in a lump sum payment on or before January 2,
2003 as compensation for services rendered from January 1, 2001 through December
31, 2002; and (3) quarterly service payments, payable in arrears, for the period
beginning January 1, 2003 at an annual rate of $1,250. The management services
agreements are terminable by either party upon 60 days written notice.

NOTE 8 - STOCKHOLDERS' EQUITY:

      Grupo TFM's capital stock is variable with a fixed minimum of Ps50,000 and
an unlimited maximum. The capital stock of Grupo TFM is divided into series
without par value, whose principal differences relate to: a) Series "A" shares
with voting rights, which can be held only by persons or companies of Mexican
nationality and represent up to 51% of the capital stock of Grupo TFM; b) Series
"B" shares with voting rights, which can be held by persons

                                      F-48

<PAGE>

or companies of non-Mexican nationality and represent up to 49% of the capital
stock of Grupo TFM, unless authorized by the National Commission of Foreign
Investments, in which case the percentage can be higher, and c) Series "L"
shares with restricted voting rights, which are not entitled to a dividend
preference.

      In connection with the original formation of Grupo TFM, the Government
purchased a 24.63% non-voting interest in Grupo TFM for $198.8 million. The
Government also granted the original shareholders of Grupo TFM an option (the
"call option") to purchase the Government's equity interest in Grupo TFM. TFM
has been appointed as the purchaser and, on July 29, 2002, purchased all of the
call option shares for an aggregate purchase price of $256.1 million. The
purchase price for the call option shares was financed through (1) a portion
($162,575) of the proceeds of the issuance of $180,000 of debt securities by TFM
(see Note 5) and approximately $93,555 was applied against note receivables from
the Government. Thus, the shares acquired by TFM are being considered as
treasury shares.

      At December 31, 2003 the capital stock of Grupo TFM is represented by
10,063,570 shares as follows:

<TABLE>
<CAPTION>
                                       NUMBER OF SHARES                       NUMBER OF SHARES
STOCKHOLDERS                   (FIXED PORTION OF CAPITAL STOCK)      (VARIABLE PORTION OF CAPITAL STOCK)
------------                    ------------------------------        ----------------------------------
<S>                             <C>                                   <C>
                                          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
                                          ==========                          ================
</TABLE>

      Pursuant to the new shares sub-series "L-2" granted to TFM, the voting
rights attached to these shares are limited to the following matters: (i)
extension of the duration of the Company; (ii) premature dissolution of the
Company; (iii) change in the object of the Company; (iv) change of nationality
of the Company; (v) transformation of the Company; (vi) merger with another
company; (vii) the split-up of the Company and (viii) the cancellation of the
registration of the shares with the Mexican Stock Exchange or any foreign stock
exchange of the shares which might be registered. Except as described above,
holders of Sub-series "L-2" shares have no voting rights. Grupo TFM Sub-series
"L-2" shares do not confer upon the holders thereof any right to preference
dividends.

      The sub-series "L-1" shares that were previously held the by Government
were cancelled as the call option was appointed by TFM.

      At the General Ordinary Stockholders' Meeting held on December 21, 2001,
the stockholders of Grupo TFM agreed to pay dividends of $33,819, equivalent to
$3.3605 per share.

      At the Unanimous Resolutions Meeting held on December 21, 2001, the
stockholders of TFM agreed to pay dividends of $33,165, equivalent to $0.0002396
per share.

      On March 26, 2002, the Company received the ruling from Mexican Court
annulling the Ordinary Stockholders' Meeting mentioned above. As a consequence
the Unanimous Resolutions Meeting mentioned above, was also annulled, thus the
dividends, agreed in both Meetings, were cancelled in the consolidated financial
statements as of December 31, 2001, giving retroactive effect to said annulment.
Thus, the amounts paid in this regard were applied against the acquisition of
Mexrail and the purchase price of the 24.63%. (See Note 1).

      The Government retained a 20% interest in TFM's shares and reserved the
right to sell such shares by October 31, 2003 in a public offering. In the event
that such public offering does not occur by October 31, 2003, Grupo TFM may
purchase the Government's equity interest in TFM at a purchase price equal to
the per share price initially paid by Grupo TFM, indexed based on Mexican
inflation. If Grupo TFM does not purchase the Government's TFM interest, the
Government may require Grupo TMM and KCS to purchase the TFM shares at the price
discussed above. See actual events on Note 11.

                                      F-49

<PAGE>

      Dividends paid are not subject to income tax if paid from the Net Tax
Profit Account and will be taxed at a rate that fluctuates between 4.62% and
7.69% if they arise from the Reinvested Net Tax Profit Account. Any excess over
this account is subject to a tax equivalent to 49.25% and 47.06% depending on
whether paid in 2004 or 2005, respectively. The tax is payable by the Company
and may be credited against its income tax in the same year or the following two
years. Dividends paid are not subject to tax withholding.

      In the event of a capital reduction, any excess of stockholders' equity
over capital contributions, the latter restated in accordance with the
provisions of the Income Tax Law, is accorded the same treatment as dividends.

NOTE 9 - OTHER INCOME (EXPENSES):

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                         ------------
                                                                            2001             2002           2003
                                                                            ----             ----           ----
<S>                                                                      <C>             <C>            <C>
Fees in VAT Lawsuit (1).............................................                     ($    6,260)   ($    26,701)
Sales of property and equipment - Net...............................     ($   7,585)          (6,897)         (2,909)
Costs of locomotive sublease........................................         (1,452)          (1,256)         (1,240)
Electric locomotive maintenance.....................................         (2,469)          (2,428)         (2,428)
Gain on sale of Griega Mariscala Line...............................         60,744            2,384
Equity in Terminal Ferroviaria del Valle de Mexico S.A. de C.V. ....           (915)           1,269             282
Recoverable income tax..............................................          2,861                            1,222
Other - Net.........................................................        (15,612)          (6,067)         (3,608)
                                                                         ----------      -----------    ------------
                                                                          $  35,572      ($   19,255)   ($    35,382)
                                                                         ==========      ===========    ============
</TABLE>

------------------
(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. Notwithstanding, in accordance with IAS the VAT
      recovery is a contingency gain as of December 31, 2003. (See Note 11)

NOTE 10 - INCOME TAX, EMPLOYEES' STATUTORY PROFIT SHARING, ASSET TAX AND TAX
          LOSS CARRYFORWARDS:

      INCOME TAX

      Grupo TFM and its subsidiaries compute income tax on an individual basis.
However, Grupo TFM and its subsidiaries (except Mexrail and its subsidiary)
report tax results to Grupo TMM at the 60% from its holding interest in each
subsidiary to determine Grupo TMM's consolidated tax result. Thus, Arrendadora
TFM owes income tax of $2,551 to Grupo TMM as of December 31, 2003.

      Grupo TFM and its subsidiaries had historical combined losses for tax
purposes of $51,680, $401,415 and $234,403 for the years ended December 31,
2001, 2002 and 2003, respectively. The difference between tax losses and book
income (loss) is due principally to the inflation gain or loss recognized for
tax purposes, the difference between book and tax depreciation and amortization,
non-deductible expenses and temporary differences for certain items that are
reported in different periods for financial reporting and income tax purposes.

      The expense for income tax charged to income was as follows:

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                       -----------------------
                                                                                 2001            2002           2003
                                                                                 ----            ----           ----
<S>                                                                          <C>             <C>             <C>
Current income tax expense.................................................  $        79     $         -     $    10,763
Deferred income tax expense................................................        2,573          30,233          22,127
                                                                             -----------     -----------     -----------
Net income tax expense.....................................................  $     2,652     $    30,233     $    32,890
                                                                             ===========     ===========     ===========
</TABLE>

                                      F-50
<PAGE>

      Reconciliation of the income tax expense based on the statutory income tax
rate to recorded income tax expense was as follows:

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                        -----------------------
                                                                                2001          2002          2003
                                                                                ----          ----          ----
<S>                                                                          <C>           <C>          <C>
Income (loss) before income tax............................................  $  104,832    $  19,904    ($    28,203)
                                                                             ==========    =========    ============
Income tax at 35% in 2001 and 2002 and 34% in 2003.........................  $   36,691    $   6,967    ($     9,589)
(Decrease) increase resulting from:
     Effects of inflationary and devaluation components....................      28,680      (43,251)         15,347
     Indexation of depreciation and amortization...........................     (39,648)      48,117          30,154
     Effects of inflation on tax loss carryforwards........................     (26,202)      14,281          (9,222)
     Non-deductible expenses...............................................         911        2,128             578
Change in tax rate from 35% to 32%.........................................                   (1,837)          2,992
Other - Net................................................................       2,220        3,828           2,630
                                                                             ----------    ---------    ------------
Net deferred income tax expense............................................  $    2,652    $  30,233     $    32,890
                                                                             ==========    =========    ============
</TABLE>

      According to the amendments to the Mexican Income Tax Law in 2002, the
income tax rate will decrease one percent per year from 35% starting in 2002 up
to 32% in 2005.

      The components of deferred tax assets and (liabilities) are comprised of
the following:

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                      ------------
                                                                                  2002            2003
                                                                                  ----            ----
<S>                                                                          <C>             <C>
Tax-loss carryforwards.....................................................  $    381,954    $    478,947
Inventories and provisions - Net...........................................        31,255          20,597
Machinery and equipment....................................................       (42,951)        (48,224)
Concession rights..........................................................      (264,046)       (367,949)
Other......................................................................        (5,240)         (4,526)
                                                                             ------------    ------------
Net deferred income tax asset..............................................  $    100,972    $     78,845
                                                                             ============    ============
</TABLE>

      The Company has recognized deferred tax assets related to its tax loss
carryforwards and other items after evaluating the reversal of existing taxable
temporary differences. To the extent that the balance of the deferred tax assets
exceeds the existing temporary differences. Management has evaluated the
recoverability of such amounts by estimating future tax profits in expected in
the foreseeable future and the remaining tax loss carryforwards periods which
extend between 2012 through 2046. The tax profits include estimates of
profitability and macroeconomic assumptions which are based on management's best
estimate as of this date.

      EMPLOYEES' STATUTORY PROFIT SHARING

      Employees' statutory profit sharing is determined by the Company at the
rate of 10% on taxable income, adjusted as prescribed by the Mexican Income Tax
Law. For the years ended December 31, 2001, 2002 and 2003, there was no basis
for employees' statutory profit sharing.

      ASSET TAX

      The Asset Tax Law establishes a tax of 1.8% on the average of assets, less
certain liabilities, which is payable when it exceeds the income tax due. For
the year ended December 31, 2001 the Company was not subject to assets tax.
There was no asset tax due in 2002 and 2003.

      TAX LOSS CARRYFORWARDS

      At December 31, 2003 Grupo TFM and its subsidiaries had combined tax loss
carryforwards, which under the Mexican Income Tax Law are inflation-indexed
through the date of utilization as shown in next page.

                                      F-51

<PAGE>

<TABLE>
<CAPTION>
                                                                           INFLATION-INDEXED
                                                                              AMOUNTS AS OF          YEAR OF
YEAR IN WHICH LOSS AROSE                                                    DECEMBER 31,2003       EXPIRATION
------------------------                                                    ----------------       ----------
<S>                                                                        <C>                     <C>
1996...................................................................    $       14,130             2046
1997...................................................................           228,092             2046
1998...................................................................           339,384             2046
1999...................................................................             9,049             2046
2000...................................................................           160,049             2046
2001...................................................................            68,743             2046
2002...................................................................           398,791             2012
2003...................................................................           274,817             2046
                                                                           --------------
                                                                           $    1,493,055
                                                                           ==============
</TABLE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES:

      A)    COMMITMENTS:

            CONCESSION DUTY

      Under the Concession, the Government has the right to receive a payment
from the Company equivalent to 0.5% of the gross revenue during the first 15
years of the Concession period and 1.25% during the remaining years of the
Concession period. For the years ended December 31, 2001, 2002 and 2003 the
concession duty expense amounted to $3,391, $3,267 and $3,599, respectively,
which was recorded as operating expense.

            CAPITAL LEASE OBLIGATIONS

      At December 31, 2002 and 2003, the outstanding indebtedness corresponds to
two land capital leases for a period of ten years, in which TFM has the option
to purchase them at the end of the agreement term.

            LOCOMOTIVES OPERATING LEASES

      In May 1998 and September 1999, the Company entered into operating lease
agreements for 75 locomotives each, which expire over the next 17 and 18 years,
respectively. At the end of the contracts the locomotives will be returned to
the lessor. As of December 31, 2003, the Company had received 150 locomotives.
Rents under these agreements amounted $28.8 million in 2001, $29.1 million in
2002 and $29.1 million in 2003.

      Future minimum payments, by year and in the aggregate, under the
aforementioned leases are as follows:

<TABLE>
<CAPTION>
                                                                                      AT DECEMBER 31,
                                                                                      ---------------
YEAR ENDING DECEMBER 31,                                                          2002            2003
------------------------                                                          ----            ----
<S>                                                                          <C>             <C>
2003.......................................................................  $     29,095
2004.......................................................................        29,135    $     29,135
2005.......................................................................        29,095          29,095
2006.......................................................................        29,095          29,095
2007.......................................................................        29,095          29,095
2008 and thereafter........................................................       344,173          29,135
2009 and thereafter........................................................                       315,038
                                                                             ------------    ------------
                                                                             $    489,688    $    460,593
                                                                             ============    ============
</TABLE>


                                      F-52
<PAGE>
            RAILCARS OPERATING LEASES

      The Company leases certain railcars under agreements, which are classified
as operating leases. The term of the contracts fluctuate between 3 and 15 years.
Future minimum rental payments, under these agreements are shown as follows:

<TABLE>
<CAPTION>
                                                                                    AT DECEMBER 31,
                                                                     ------------------------------------------
YEAR ENDING DECEMBER 31,                                                   2002                     2003
------------------------                                             ------------------       -----------------
<S>                                                                  <C>                      <C>
2003............................................................     $           32,830
2004............................................................                 18,064       $          31,930
2005............................................................                 12,504                  15,592
2006............................................................                 10,012                  12,642
2007............................................................                  9,084                  10,433
2008 and thereafter.............................................                 51,143                   9,498
2009 and thereafter.............................................                                         40,942
                                                                     ------------------       -----------------
                                                                     $          133,637       $         121,037
                                                                     ==================       =================
</TABLE>

            LOCOMOTIVES MAINTENANCE AGREEMENTS

      The Company has entered into two locomotive maintenance agreements, which
expire in 2004 and 2018 with third-party contractors. Under current
arrangements, the contractors provide both routine maintenance and major
overhauls at an established rate in a range from four to five hundred dollars
per locomotive per day.

            TRACK MAINTENANCE AND REHABILITATION AGREEMENT

      In May 2000, the Company entered into a track maintenance and
rehabilitation agreement, which expires in 2012. Under this contract, the
contractor provides both routine maintenance and major rehabilitation to the
Celaya - Lazaro Cardenas stretch, which is comprised of approximately 350 miles.
Maintenance and rehabilitation expense amounted to $30.2 million in 2001, $35.6
million in 2002 and $3.4 million in 2003. Under this agreement, the Company will
pay approximately $30 million in the following 9 years.

            FUEL PURCHASE AGREEMENT

      On December 19, 1997, the Company entered into a fuel purchase agreement
with PEMEX Refinacion, under which the Company 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. The term of the agreement is indefinite but
can be terminated for justified cause by each party upon 30 days' notice.

            FUEL FREIGHT SERVICE AGREEMENT

      On October 30, 2002, the Company entered into a freight service agreement
with PEMEX Refinacion, which will expire in 2006. Under this agreement the
Company has the obligation to provide services amounting in pesos by year as
shown below:

<TABLE>
<CAPTION>
                                                        MINIMUM             MAXIMUM
                                                      ------------        ------------
<S>                                                   <C>                 <C>
2003..........................................        Ps   126,264        Ps   315,659
2004..........................................              98,769             246,922
2005..........................................              98,769             246,922
2006..........................................              65,756             164,390
                                                      ------------        ------------
                                                      Ps   389,558        Ps   973,893
                                                      ============        ============
</TABLE>


                                      F-53

<PAGE>
      B)    CONTINGENCIES:

            A)    VALUE ADDED TAX LAWSUIT:

      The Company has filed a claim for the refund of approximately $188 million
(Ps 2,111 million) of value added tax ("VAT") paid in connection with the
Acquisition (see Note 1).

      On September 25, 2002 the Mexican Magistrates Court of the First District
(the "Federal Court") issued its judgment in favor of TFM on the VAT 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 TFM. By a unanimous decision, a three-judge
panel of the Federal Court vacated a prior judgment of the Mexican Fiscal Court
(Tribunal Federal de Justicia Fiscal y Administrativa) and remanded the case to
the Mexican 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 the name of TFM. On December 6, 2002 the upper chamber of the
Mexican Fiscal Court issued a ruling denying TFM's right to receive a value
added tax refund from the Government. On January 8, 2003, TFM was officially
notified of the new judgment of the Fiscal Court and on January 29, 2003, filed
the appropriate appeal.

      On June 11, 2003 the Federal Court issued a judgment in favor of TFM
against the ruling of the Fiscal Court. On July 9, 2003 TFM was formally
notified by a three-judge panel of the Federal Court of its June 11, 2003
judgment, which granted TFM constitutional protection ("amparo") against the
ruling of the Fiscal Court issued on December 6, 2002, which had denied TFM the
right to receive the VAT refund certificate. The Federal Court found that the
VAT refund certificate had not been delivered to TFM, and confirmed the Fiscal
Court's determination that

         TFM had the right to receive the VAT refund certificate. The Federal
Court's ruling stated that the Treasury's decision denying delivery of the VAT
refund certificate to TFM violated the Mexican Law, and it instructed that the
VAT refund certificate be issued to TFM 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 TFM's VAT lawsuit vacating its previous resolution of
December 6, 2002, and in strict compliance with the ruling issued on June 11,
2003, by the Fiscal Court, resolved that TFM had proved its case, and that a
"ficta denial" occurred, declaring such denial null and void as ordered by the
Fiscal Court. On August 25, 2003, TFM was formally notified by the Fiscal Court
of its resolution regarding TFM's 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 TFM under the
terms established by Article 22 of the Mexican Fiscal Code in effect in 1997. On
October 3, 2003 the Mexican Tax Attorney of the Federal Government (Procuraduria
Fiscal de la Federacion) 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
remains in place.

      On January 19, 2004, the Mexican Treasury delivered to TFM, pursuant to
the August 13, 2003 Fiscal Court ruling, a Special VAT Certificate representing
the historical claim amount of Ps2,111 million, or approximately $188 million as
of December 31, 2003. TFM will continue seeking for the additional amounts
representing the effect of inflation and interest on the original claim amount.

            RECENT EVENTS

      On January 20, 2004, the Mexican Fiscal Administration Service ("Servicio
de Administracion Tributaria" or "SAT") issued a provisional attachment of the
Special VAT Certificate, stating that the documents that support the value of
the Special VAT Certificate do not comply with applicable tax requirements. TFM
has publicly stated it will oppose the SAT's action through all possible legal
means.

      In the preliminary summation finding, the SAT noted that the Company,"...
wrongfully declared a VAT receivable for Ps2,111 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. TFM has not made any
reserve for this purported claim as it believes that it has not merits and as of
today, no tax liability has been levied against TFM, as the final summary of the
audit is still pending.

                                      F-54

<PAGE>

            B)    THE MEXICAN GOVERNMENT PUT

      In October 2003, Grupo TFM requested that a federal judge in Mexico
provide an appropriate interpretation of the Put Agreements. When the Government
opened the Mexican railroad system to private investment, it retained a 20%
equity interest in TFM. The intention was to sell these shares through a public
offering, at such time as the Government considered it appropriate and with
approval of the Comision Nacional Bancaria y de Valores- "CNBV", with the
objective of strengthening the market for public investments in Mexico and
encouraging additional investors to invest in the capital stock of TFM.

      Additionally, TFM's bid contained the following condition: "The franchise
purchasers will be obligated to acquire the equity portion that cannot be placed
in the Bolsa Mexicana de Valores- "BMV", at the initial offering prices plus
respective interest".

      The Company believes that under the Put Agreements, the Government agreed
to comply with the following process in order to sell the equity interest that
the Government retains in TFM:

            a.    Register the TFM shares with the BMV;

            b.    Receive the approval of the CNBV to exercise the put;

            c.    Request that TFM provide all information necessary to place
                  the Government's equity stake in the equity markets; and

            d.    Place the number of TFM shares it is able to in the equity
                  markets once all necessary approvals are granted.

      When the above steps are completed, the Government is to notify Grupo TFM
of the number of TFM shares that could not be placed in the equity markets and
is to request that Grupo TFM acquire those shares at the minimum stipulated
price. The Company does not believe that any of the steps described above have
been carried out. As a result, the Company believes that the Government has not
yet completed the steps required for it to request that Grupo TFM acquire the
equity stake in TFM held by the Government; and consequently, the Company
believes that the put is still outstanding until the above conditions and the
VAT claim will be completed and on such date the term of 81 months starts, in
accordance with the agreement dated June 9, 1997.

      The price of the Government's interest, as indexed for Mexican inflation,
as of December 31, 2003 was approximately 1,570.3 million UDIs (representing
Ps5,264 million, or approximately $469.4 million). The estimated fair market
value of the Government's interest as of December 31, 2003 was $475.6 million.
If the Government's put rights were properly exercised and the transaction was
consummated, purchase accounting would apply and goodwill may be recognized for
the excess, if any, of the purchase price over the fair value of the net assets
acquired.

      Nevertheless, and notwithstanding the judicial proceeding initiated by
Grupo TFM in October 2003, on October 31, 2003, the SCT requested that Grupo TFM
confirm whether it intends to purchase the TFM shares subject to the put rights
of the Government. Grupo TFM responded that the purchase of the Government's
shares of TFM was the subject of an ongoing judicial proceeding that had yet to
be resolved. On November 3, 2003, the SCT stated in a communication to Grupo TFM
that it had complied with the requirements for the exercise of its put rights as
set out in the Put Agreements and that all procedures required to execute the
sale of the Government's TFM shares would be made through the SAT.

      Grupo TFM requested that a federal court review the SCT's communications
with respect to the Government's put rights. On December 16, 2003, the Fourth
Administrative District Court issued an injunction ordering the parties to
maintain the status quo pending judicial resolution of the dispute. In order for
the injunction to be effective, the Fourth Administrative District Court
required that Grupo TFM post a bond for the equivalent of six months of interest
on the exercise price of the Government's put option to be calculated at an
interest rate of 6% per annum (approximately Ps160 millions or approximately
$14.3 million at December 31, 2003).

                                      F-55

<PAGE>

      However, as no further action has been taken by the Government to enforce
its rights in connection with the put shares, Grupo TFM's obligation to post
such a bond is considered discretionary under Mexican law. Consequently, Grupo
TFM has elected, for the time being, not to post the bond so as not to incur
unnecessary expense. Grupo TFM has the right to post the bond at any time while
the amparo proceeding is pending. Grupo TFM will vigorously defend its view that
the Government has not fulfilled the prescribed steps required to exercise its
put rights. Although Grupo TFM believes that it will prevail in legal
proceedings related to these matters, there can be no assurance that it will
prevail.

      In the event that Grupo TFM does not purchase the Government's put, Grupo
TMM and KCS, or either Grupo TMM or KCS, are obligated to purchase the
Government's interest. Grupo TMM and KCS have cross indemnities in the event the
Government requires only one of them to purchase its interest. The cross
indemnities allow the party required to purchase the Government's interest to
require the other party to purchase its pro rata portion of such interest.

            C) FERROCARRIL MEXICANO, S.A. DE C.V. ("FERROMEX") DISPUTES

      TFM and Ferromex have not been able to agree upon the rates each of them
is required to pay to the other for interline services and haulage and trackage
rights. Therefore, in accordance with TFM's rights under the Mexican railroad
services law and regulations, in February 2001, TFM initiated an administrative
proceeding requesting a determination of such rates by the SCT.

      In September 2001, Ferromex filed a legal claim against TFM relating to
the payments that TFM and Ferromex are required to make to each other for
interline services and trackage and haulage rights. TFM believes that this legal
claim is without merit, and that the payments for interline services and
trackage and haulage rights owed to TFM by Ferromex exceed the amount of
payments that Ferromex claims TFM owes to Ferromex for such services and rights.
Accordingly, TFM believes that the outcome of this legal claim will not have a
material adverse effect on the financial condition of TFM. On September 25,
2002, the Third Civil Court of Mexico City rendered its judgment in favor of
TFM. Ferromex appealed the judgment and TFM prevailed in such appeal. Ferromex
went in last resource, to the "amparo" proceedings before Federal Courts, and
obtained a resolution that orders the higher local court to review the case
again exclusively for the interline services. The higher local issued a new
ruling which both, Ferromex and TFM claimed in a new "amparo" proceeding at the
Federal Court, and which is pending resolution. TFM cannot predict whether it
will ultimately prevail.

      In connection with the Ferromex claim, Ferromex temporarily prevented TFM
from using certain short trackage rights which TFM has over a portion of its
route running from Celaya to Silao, which is the site of a General Motors plant
from where TFM transports finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving us
access, and in October 2001, TFM filed a counterclaim against Ferromex relating
to these actions. TFM has also initiated several judicial and administrative
proceedings at the SCT to seek the imposition sanctions on Ferromex for
violations to the trackage rights in the route from Celaya to Silao, which as of
to date have not been resolved.

      TFM has also initiated several administrative and judicial proceedings
(including criminal actions) against Ferromex at the SCT and the relevant
Federal Courts, in connection with its trackage rights in Altamira, Topo
Grande-Chipinque, Guadalajara, Arellano-Chicalote, Ramos Arizpe-Encantada, and
Pedro C. Morales-Cerro de la Silla. TFM cannot predict whether it will
ultimately prevail on such proceedings.

      In March 2002, the SCT issued its ruling in response to TFM's request,
establishing a rate to be charged for trackage rights using the criteria set
forth in the Mexican railroad services law and regulations. TFM is appealing the
ruling and requesting a suspension of the effectiveness of the ruling pending
resolution of its appeal. TFM cannot predict whether it will ultimately prevail.
TFM believes that even if the rates established in the ruling goes into effect
and TFM and Ferromex begin using the long-distance trackage rights over each
other's rail line, this will not have a material adverse effect on TFM's results
of operations. A separate ruling was issued confirming TFM's right to use the
Celaya-Silao stretch of Ferromex track, which was appealed by Ferromex before
Federal Courts obtaining the suspension of such ruling. TFM requested and
obtained an "amparo" proceeding against such suspension and Ferromex appealed
the resolution granting the "amparo" to TFM. The final resolution on the appeal
of Ferromex is pending. TFM cannot predict whether it will ultimately prevail in
this "amparo" proceeding as well as on the main procedure regarding TFM's right
to use the Celaya-Silao stretch of Ferromex track.

                                      F-56

<PAGE>

      Both Ferromex and TFM have suspended the reconciliation of their balances
in 2003, and have initiated several judicial and administrative proceedings in
connection with the amounts payable to each other for interline services,
haulage and trackage rights. Those procedures continue under litigation and
therefore are pending of final resolution.

            D) DISPUTE BETWEEN GRUPO TMM AND KCS

      On April 20, 2003, Grupo TMM entered into the Acquisition Agreement with
KCS, which owns a 49% voting interest in Grupo TFM, under the terms of which
Grupo TMM was to sell its entire interest in Grupo TFM, which owns 80% of TFM
and through which its railroad operations are conducted. Under the agreement,
KCS was to acquire the Grupo TMM's interest in Grupo TFM in exchange for $200
million in cash and 18,000,000 shares of common stock of KCS's successor
corporation. In addition, Grupo TMM was to have the right to receive an
additional earnout of up to $175 million in cash ($180 million if KCS elected to
defer a portion of the payment) in the event that the pending VAT claim against
the Government by TFM was successfully resolved prior to the execution by the
Government of its "put" rights in certain shares of TFM and the amount of VAT
Proceeds received was greater than the purchase price of the "put" shares held
by the Government. Completion of the TFM sale was subject to approval by (i)
holders of Grupo TMM existing notes, (ii) the shareholders of KCS and (iii) the
shareholders of Grupo TMM, receipt of certain governmental approvals in the
United States and Mexico and other customary conditions. Subsequent to the
execution of the Acquisition Agreement, KCS representatives undertook certain
activities that Grupo TMM believes jeopardized the economic value to be realized
by Grupo TMM and its shareholders form the sale of Grupo TFM. Grupo TMM believes
these actions interfered with its ability to realize the earnout and also
created the potential for serious detriment to the value of the KCS shares Grupo
TMM was to receive in the transaction.

      On August 18, 2003, Grupo TMM's shareholders voted to reject the
Acquisition Agreement. In addition, Grupo TMM's Board of Directors met on August
22, 2003 and voted to terminate the Acquisition Agreement. Grupo TMM sent a
notice of termination of the Acquisition Agreement to KCS that day.

      KCS has disputed Grupo TMM rights to terminate the Acquisition Agreement
and alleged certain breaches by Grupo TMM of the Acquisition Agreement. Under
the terms of the Acquisition Agreement, the parties have submitted these
disputes to binding arbitration. An arbitration panel has been chosen in
accordance with the terms of the Acquisition Agreement. KCS has obtained a
preliminary injunction for the Delaware Chancery Court enjoining Grupo TMM from
violating the terms of the Acquisition Agreement pending a subsequent decision
by a panel of arbitrators regarding whether the Acquisition Agreement was
properly terminated.

      On December 8, 2003, Grupo TMM and KCS participated in a preliminary
hearing with the arbitrators during which the arbitrators deliberated whether
the issued of the Acquisition Agreement's continued effectiveness should be
bifurcated from the other issues in the case. On December 22, 2003, the panel
bifurcated the issue of whether Grupo TMM properly terminated the Acquisition
Agreement for the other disputed issues between the parties. On February 2, 3
and 4, 2004 a hearing was held in New York on the issue of whether Grupo TMM's
termination was proper. Grupo TMM maintained that they properly terminated the
Acquisition Agreement while KCS sought a declaration that the Acquisition
Agreement was wrongfully terminated. On February 19, 2004, Grupo TMM and KCS
filed post-hearing briefs with the panel. Grupo TMM is currently awaiting a
ruling from the panel on the issue of whether Grupo TMM's termination was
proper, which ruling is expected from the panel in April 2004. Once the panel
issues its ruling, the parties will agree to a schedule to resolve the other
remaining issues.

      In March 2003, Grupo TMM announced that the three-member panel in the
arbitration proceeding between KCS and Grupo TMM concluded, in an interim award,
that the rejection of the Acquisition Agreement by Grupo TMM's shareholders in
its vote on August 18, 2003, did not authorized Grupo TMM to terminate the
Agreement. Accordingly, the three-member panel indicated the Agreement will
remain in force and binding on the parties until otherwise terminated according
to its terms or by law. In reaching the conclusion, the panel found it
unnecessary to determine whether approval by Grupo TMM's shareholders is a
"condition" of the Agreement.

      Grupo TMM continues to believe that any transaction cannot occur without
approval of the Company's shareholders, and the panel's decision did not reach a
conclusion on that issue. The arbitration process will continue, and Grupo TMM
will review the interim reward with its counsel and analyze the alternatives
available to it in this process.

                                      F-57

<PAGE>

            E) OTHER LEGAL DISPUTES INVOLVING KCS

         Several Grupo TFM and TFM board of directors meetings have taken place
since August 25, 2003. KCS and certain of its representatives have initiated
judicial proceedings in Mexico seeking the nullification of such boards
meetings. In addition, KCS has initiated another proceeding seeking the
nullification of Grupo TFM's November 24, 2003 shareholders' meeting. The
Company believes that KCS's claims in this connection are without merit. At
present, the Company has responded to all claims concerning which the Company
has been served. Although the Company cannot assure the outcome of the
proceedings resulting from these claims, the Company believes that none of the
underlying claims initiated by KCS in Mexico, if ultimately determined in favor
of KCS, will have a material adverse effect on TFM.

            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 is in the process of completing this
            study.

         -  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 12 - RECONCILIATION OF DIFFERENCES BETWEEN IFRS AND U.S. GAAP:

      The Company's combined and consolidated financial statements are prepared
in accordance with IFRS which differ in certain material respects from U.S.
GAAP. The main differences between IFRS and U.S. GAAP, as they relate to the
Company, are summarized in the following pages. An explanation is provided when
considered necessary of the effects on the consolidated net income and on
stockholders' equity.

      a.    RECONCILIATION OF NET INCOME:

<TABLE>
<CAPTION>

                                                                              YEAR ENDED DECEMBER 31,
                                                  REFERENCE TO   -------------------------------------------------
                                                   SUBNOTE d.         2001             2002               2003
                                                  ------------   -------------    -------------      -------------
<S>                                               <C>            <C>              <C>                <C>
Net income (loss) under IFRS................                     $      81,749    ($      7,988)     ($     48,939)
Deferred income tax (expense) benefit.......           i                (6,679)         121,738             84,379
Deferred employees' statutory profit
 sharing (expense) benefit..................           i                (2,623)          25,792             11,528
Deferred charges............................           ii                 (933)             702
Amortization of deferred charges............           ii                                                       34
Depreciation................................           iii                                 (459)              (612)
Effect of U.S. GAAP adjustments on minority
 interest...................................                             2,047          (29,601)           (19,076)
                                                                 -------------    -------------      -------------
Net income under U.S. GAAP                                       $      73,561     $    110,184       $     27,314
                                                                 =============    =============      =============
</TABLE>

                                      F-58

<PAGE>

      b.    RECONCILIATION OF STOCKHOLDERS' EQUITY:

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                  REFERENCE TO    -------------------------------
                                                                   SUBNOTE d.          2002            2003
                                                                 -------------    --------------   --------------
<S>                                                                               <C>              <C>
Stockholders' equity under IFRS...............................                    $      712,344   $      663,405
Deferred income tax...........................................        i                   33,406          117,785
Deferred employees' statutory profit sharing..................        i                   38,693           50,221
Deferred charges..............................................        ii                    (231)            (197)
Depreciation..................................................        iii                   (459)          (1,071)
Effect on purchase of subsidiary shares.......................        iii                 16,447           16,447
Effect of U.S. GAAP adjustments on minority interest..........                           (14,328)         (33,404)
                                                                                  --------------   --------------
Stockholders' equity under U.S. GAAP..........................                    $      785,872   $      813,186
                                                                                  ==============   ==============
</TABLE>

      c.    ANALYSIS OF CHANGES IN STOCKHOLDERS' EQUITY UNDER U.S. GAAP:

<TABLE>
<CAPTION>
                                                                 REFERENCE TO                DECEMBER 31,
                                                                   SUBNOTE d.     -------------------------------
                                                                                       2002             2003
                                                                 -------------    --------------   --------------
<S>                                                              <C>              <C>              <C>
Balance at beginning of the year..............................                    $      915,341   $      785,872
Effect on purchase of subsidiary shares.......................       iii                 (34,749)
Treasury shares...............................................                          (204,904)
Net income....................................................                           110,184           27,314
                                                                                  --------------   --------------
Balance at end of the year....................................                    $      785,872   $      813,186
                                                                                  ==============   ==============
</TABLE>

      d.    SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP:

            i.    Deferred income tax and employees' statutory profit sharing

      The deferred income tax included in the consolidated financial statements
was calculated in accordance with the IAS-12 (revised) which requires the
recording of deferred taxes for fixed assets and 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 the indexation for tax purposes.

      In Mexico, companies are obligated to pay their employees a portion of the
net income as defined by specific regulations. For U.S. GAAP purposes, deferred
profit sharing liabilities or assets would be recorded for temporary differences
that may arise in the determination of the current liability based on the
statutory rate of 10%. These temporary differences are similar to those that
exist for deferred income tax purposes. IFRS do not require the establishment of
assets or liabilities for these differences.

      The differences in the net deferred income tax and employees' statutory
profit sharing assets determined under U.S. GAAP and IFRS at December 31, 2002
and 2003 are summarized below:

<TABLE>
<CAPTION>
                                                            DEFERRED INCOME                  DEFERRED PROFIT
                                                               TAX ASSETS                     SHARING ASSETS
                                                     ----------------------------      ---------------------------
                                                        2002             2003             2002            2003
                                                    ------------     ------------     ------------    ------------
<S>                                                 <C>              <C>              <C>             <C>
Amounts recorded under IFRS....................      $   100,972      $    78,845      $         -     $         -
Amount determined under U.S. GAAP..............          134,378          196,630           38,693          50,221
                                                    ------------     ------------     ------------    ------------
Net difference.................................     ($    33,406)    ($   117,785)    ($    38,693)   ($    50,221)
                                                    ============     ============     ============    ============
</TABLE>

      Under U.S. GAAP, employees' profit sharing would be considered as
      operating expense.

                                      F-59

<PAGE>

            ii.   Deferred charges

      During 2001, the Company incurred in certain financing costs paid to third
parties which were capitalized under IFRS amounting to $933. Under U.S. GAAP, it
is required that these costs are expensed as incurred.

      Additionally during 2002, the Company incurred in certain expenses related
with the 180,000 senior notes as mentioned in Note 5. Under U.S. GAAP the legal
fees for the exchange of such senior notes amounting to $231 should be expensed
as incurred. Nevertheless, under IFRS these expenses should be capitalized and
amortized over the period of the senior notes. The amortization for the year
ended December 31, 2003 was $34.

            iii.  Mexrail transaction

      As more fully described in Note 1, on March 27, 2002, Grupo TMM and KCS
sold their respective interests in Mexrail to TFM for an aggregate purchase
price of $64 million. Under U.S. GAAP, TFM has recorded this transaction
pursuant to SFAS No. 141 "Business Combinations" with partial fair value step-up
(49%), for KCS's investment, being recognized for the assets and liabilities
being acquired. Thus, the amount recorded was $20,557 and the corresponding
deferred income tax (45%) for $9,249, both allocated in fixed assets. During the
year ended December 31, 2003 the depreciation was $612 ($459 for 2002). The
portion sold by Grupo TMM to TFM (51%) amounting to $21.4 million would be
accounted for on a historical carryover basis since both Mexrail and TFM are
under the common control of Grupo TMM. Thus, the effect of the latter affected
stockholders' equity by $16.4 million (80%) and minority interest by $4.1
million.

            iv.   Earnings per share

      The weighted average number of shares outstanding for the years ended
December 31, 2001, 2002 and 2003 was 10,063,570; 9,011,069 and 7,585,100,
respectively. The net income per share (basic and diluted) under U.S. GAAP was
$7.31 in 2001, $12.23 in 2002 and $3.60 in 2003.

            v.    Intangible assets and long-lived assets

      In accordance with IFRS, impairments are recognized using discounted
operating cash flows, while under U.S. GAAP the Company must use undiscounted
cash flows. Under both methods, there is no impairment of intangible assets and
long-lived assets.

            vi.   Deferred financing costs

      For U.S. GAAP purposes costs of issuing debt should be deferred as an
asset and amortized by periodic charges to the income statement using the
interest method over the life of the debt. Under IFRS, those costs are presented
net from the debt proceedings.

            vii.  Effect of recently issued accounting standards as they relate
                  to the Company

      In April 2003, SFAS No. 149 Amendments to SFAS No. 133 ("SFAS No. 133") on
"Derivative Instruments and Hedging Activities" was issued and is applicable for
contracts entered into or modified after June 30, 2003. The requirements of SFAS
No. 133, as amended by SFAS 149 requires all derivative instruments to be
recognized as either assets or liabilities on the balance sheet, measured at
fair values. The statement permits special hedge accounting for fair value, cash
flow and foreign currency hedges providing specific criteria are met. Certain
aspects of the required hedge criteria do not allow portfolio hedging.

      In May 2003, Statement of Financial Accounting Standard No. 150 ("SFAS
150") "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS 150 improves the accounting for certain free
standing financial instruments that, under previous guidance, issuers could
account for as equity. SFAS 150 requires that certain instruments be classified
as liabilities in the statements of financial position. With the exception of
the deferral of the provisions related to mandatorily redeemable non controlling
interests, SFAS No. 150 is applicable for all financial instruments entered into
or modified after May 31, 2003 and is otherwise applicable at the beginning of
the first interim period after June 15, 2003.

                                      F-60

<PAGE>

         In January 2003, FIN 46 "Consolidations of Variable Interest Entities"
("FIN 46"), was issued and clarifies the application of Accounting Research
Bulletin No. 51 "Consolidated Financial Statements", to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. These types of entities are referred to as VIEs. For all Special
Purpose Entities ("SPEs") created prior to February 1, 2003, public companies
must apply either the provisions of FIN 46 or early adopt the provisions of FIN
46-R at the end of the first interim or annual reporting period ending after
December 15, 2003 (i. e., as of December 31, 2003 for an entity with a calendar
year-end). If a public company applies FIN 46 for such period, the provisions of
FIN 46-R must be applied as of the end of the first interim or annual reporting
period ending after March 15, 2004. For all non-SPEs created prior to February
1, 2003, public companies will be required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004. For all
entities (regardless or whether the entity is an SPE) that were created
subsequent to January 31, 2003, public companies were already required to apply
the provisions of FIN 46, and should continue doing so unless they elect to
early adopt the provisions of FIN 46-R as of the first interim or annual
reporting period ending after December 15, 2003. If they do not elect to early
adopt FIN 46-R, public companies would be required apply FIN 46-R to these
post-January 31, 2003 entities as of the end of the first interim or annual
reporting period ending after March 15, 2004.

      The Company is currently evaluating the impact, if any, that the adoption
of the above mentioned standards may have on the combined and consolidated
financial statements.

      e.    CONDENSED COMBINED AND CONSOLIDATED BALANCE SHEETS AND INCOME
            STATEMENTS:

      The following condensed combined and consolidated balance sheets and
income statements reflect the effects of the principal differences between IFRS
and U.S. GAAP.

<TABLE>
<CAPTION>
                                                                                         CONDENSED COMBINED AND
                                                                                       CONSOLIDATED BALANCE SHEETS
                                                                                               DECEMBER 31,
                                                                                               ------------
                                                                                          2002             2003
                                                                                     -------------    -------------
<S>                                                                                  <C>              <C>
Total current assets.............................................................    $     265,250    $     225,742
Long-term account receivable.....................................................            1,388            1,350
Concession rights and related assets - Net.......................................        1,215,487        1,174,217
Property, machinery and equipment - Net..........................................          638,716          660,294
Deferred income taxes and employees' statutory profit sharing....................          163,822          238,474
Other non-current assets.........................................................           41,850           37,447
                                                                                     -------------    -------------
     Total assets................................................................    $   2,326,513    $   2,337,524
                                                                                     =============    =============
Total short-term liabilities.....................................................    $     147,295    $     362,689
Total long-term liabilities......................................................        1,045,287          806,660
                                                                                     -------------    -------------
     Total liabilities...........................................................        1,192,582        1,169,349
                                                                                     -------------    -------------
Minority interest................................................................          348,059          354,989
                                                                                     -------------    -------------
Capital stock....................................................................          807,008          807,008
Treasury Shares..................................................................         (204,904)        (204,904)
Effect on purchase of subsidiary shares..........................................          (17,115)         (17,115)
Retained earnings................................................................          200,883          228,197
                                                                                     -------------    -------------
     Total stockholders' equity..................................................          785,872          813,186
                                                                                     -------------    -------------
     Total liabilities and stockholders' equity..................................    $   2,326,513    $   2,337,524
                                                                                     =============    =============
</TABLE>

                                      F-61

<PAGE>

<TABLE>
<CAPTION>
                                                                                CONDENSED COMBINED AND CONSOLIDATED
                                                                                       STATEMENTS OF INCOME
                                                                                     YEARS ENDED DECEMBER 31,
                                                                           -------------------------------------------
                                                                                2001           2002            2003
                                                                           ------------    ------------   ------------
<S>                                                                        <C>             <C>            <C>
Transportation revenues...............................................     $    720,627    $    712,140   $    698,528
Cost and expenses.....................................................          521,115         541,254        558,481
                                                                           ------------    ------------   ------------
Income on transportation .............................................          199,512         170,886        140,047
Other expenses - Net..................................................          (17,587)        (11,721)       (32,473)
                                                                           ------------    ------------   ------------
Operating income......................................................          181,925         159,165        107,574
Net financing cost....................................................          (80,649)       (113,226)      (124,827)
                                                                           ------------    ------------   ------------
Income (loss) before provision for
   deferred income taxes and minority interest........................          101,276          45,939        (17,253)
Current income tax....................................................              (79)                       (10,763)
Deferred income tax (expense) benefit.................................           (9,252)         91,505         62,252
Minority interest.....................................................          (18,384)        (27,260)        (6,922)
                                                                           ------------    ------------   ------------
Net income for the year...............................................     $     73,561    $    110,184   $     27,314
                                                                           ============    ============   ============
</TABLE>

NOTE  13 - SUBSEQUENT EVENTS:

      DISPUTE BETWEEN GRUPO TMM AND KCS

      On April 4, 2004, the panel issued an order, which was stipulated to by
KCS and Grupo TMM, and which provided that the parties agreed "not to request a
scheduling order for a further hearing in the arbitration at this time" and that
"each party reserves the right to request a scheduling order for a further
hearing at any time".

      On April 7, 2004, Grupo TMM and KCS have agreed not to move immediately
into the next phase of arbitration, following the March 19, 2004 Interim Award
of the AAA International Center for Dispute Resolution Arbitration Panel, which
found that the Acquisition Agreement remains in force and is binding on KCS and
Grupo TMM unless otherwise terminated according to its terms or by law. Both
companies have reserved the right to proceed with the next phase of arbitration
at any time. In a stipulation signed by Grupo TMM and KCS and accepted by the
arbitration panel, the two companies have agreed to discharge in good faith all
of the obligations of the Acquisition Agreement signed April 20, 2003.

      There are no further proceedings currently scheduled before the
arbitrators, although KCS has indicated that it intends to submit a claim for
its fees and expenses in connection with the hearings in February. Under an
agreement between the parties, each side remains free to seek to recommence
proceedings at any time. No damage claims have been particularized, and no
hearings set in connection with any damage claims. The Company cannot say when,
if ever, any such claims will be presented to the arbitrators.

      OTHER LEGAL PROCEEDINGS

      In 2004, KCS has initiated judicial proceeding against Grupo TMM, TMM
Multimodal, and Grupo TFM seeking the nullification of the call option agreement
dated December 31, 2001 and the corresponding amendments celebrated between the
Bank of New York and TMM Multimodal, as well as the payment of the fees and
expenses in connection with the celebration of these agreements. The call option
agreement refers to the acquisition of Grupo TFM shares owned by TMM Multimodal
in case of failure of Grupo TMM to comply with certain covenants regarding its
obligations for sale of receivables agreements.

      AMENDMENT TO TFM'S TERM LOAN FACILITY AND REFINANCING OF TFM'S COMMERCIAL
      PAPER PROGRAM

      On June 24, 2004, in order to refinance its commercial paper program, TFM
entered into an amendment to its term loan facility which was established on
September 17, 2002. The amendment increased the amount of the term loan facility
to $186.4 million, the proceeds of which will be used to repay amounts
outstanding under TFM's commercial paper program. Under the amended term loan
facility, Dollar-denominated commitments bear interest at a floating rate based
on an adjusted Eurodollar rate plus an applicable Eurodollar margin. Certain
lenders may elect to extend Peso-denominated commitments which bear interest at
a floating rate based on the Tasa de Interes Interbancaria de Equilibrio
published by Banco de Mexico plus an applicable Peso margin. Amounts outstanding
under the amended term loan facility are secured by a first priority conditional
pledge on the locomotives owned by TFM's subsidiary, Arrendadora TFM, S.A. de
C.V.

      Amounts outstanding under the amended term loan facility are payable in
semi-annual installments beginning in September 2004 and ending in September
2006. Certain lenders may elect to make their respective portion of the loan
payable in semi-annual installments beginning in September 2004 and ending in
September 2005. TFM may voluntarily prepay the loan under the amended term loan
facility without penalty provided it gives five business days' notice, subject
to a minimum payment threshold. TFM is required to prepay the loan using excess
cash flow or if it receives 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 Purchase-Sale Agreements dated January 31, 1997
and June 9, 1997.

      The amended term loan facility contains customary covenants, including
limitations on dividends, limitations on investments, limitations on prepayments
of (and amendments to the terms of) other indebtedness, limitations on sale and
leaseback transactions, limitations on assets sales, limitations on the
incurrence of indebtedness, and limitations on affiliate transactions. Under the
amended term loan facility, TFM is also subject to various financial covenants,
including maintaining certain consolidated interest coverage, consolidated fixed
charge coverage and consolidated leverage ratios.

                                      F-62

<PAGE>

                                  EXHIBIT INDEX

1.1   Corporate by-laws (Estatutos Sociales) of TFM, together with an English
      translation (incorporated herein by reference to Exhibit 3.1 of our
      Registration Statement on Form F-4, File No. 333-8322).

1.2   Corporate by-laws (Estatutos Sociales) of Grupo TFM, together with an
      English translation (incorporated herein by reference to Exhibit 3.2 of
      our Registration Statement on Form F-4, File No. 333-8322).

2.1   Indenture, dated as of June 16, 1997, among TFM, Grupo TFM, The Bank of
      New York, as Trustee, and Bankers Trust Luxembourg, S.A., as a Paying
      Agent, covering up to $150,000,000 of TFM's 10.25% Senior Notes due 2007
      (incorporated herein by reference to Exhibit 4.1 of our Registration
      Statement on Form F-4, File No. 333-8322).

2.2   First Supplemental Indenture, dated as of May 21, 2002, TFM, Grupo TFM, as
      Guarantor, The Bank of New York, as Trustee, and Deutsche Bank Luxembourg
      S.A., as the Paying Agent, covering up to $150,000,000 of TFM's 10.25%
      Senior Notes due 2007 (incorporated herein by reference to Exhibit 2.2
      from TFM and Grupo TFM's Annual Report on Form 20-F for fiscal year 2002).

2.3   Indenture, dated as of June 16, 1997, among TFM, Grupo TFM, The Bank of
      New York, as Trustee, and Bankers Trust Luxembourg, S.A., as a Paying
      Agent, covering up to $443,500,000 of TFM's 11.75% Senior Discount
      Debentures due 2009 (incorporated herein by reference to Exhibit 4.2 of
      our Registration Statement on Form F-4, File No. 333-8322).

2.4   First Supplemental Indenture, dated as of May 21, 2002, TFM, Grupo TFM, as
      Guarantor, The Bank of New York, as Trustee, and Deutsche Bank Luxembourg
      S.A., as the Paying Agent, covering up to $443,500,000 of TFM's 11.75%
      Senior Discount Debentures due 2009 (incorporated herein by reference to
      Exhibit 2.4 from TFM and Grupo TFM's Annual Report on Form 20-F for fiscal
      year 2002).

2.5   Indenture, dated as of June 13, 2002, between TFM and The Bank of New
      York, as Trustee, covering up to $180,000,000 of TFM's 12.50% Senior Notes
      due 2012 (incorporated herein by reference to Exhibit 4.3 of our
      Registration Statement on Form F-4, File No. 333-102222).

2.6   Specimen Global Note representing the Senior Notes (incorporated herein by
      reference to Exhibit 4.3 of our Registration Statement on Form F-4, File
      No. 333-8322).

2.7   Specimen Global Note representing the Senior Discount Debentures
      (incorporated herein by reference to Exhibit 4.4 of our Registration
      Statement on Form F-4, File No. 333-8322).

2.8   Specimen Global Note representing the Senior Notes due 2012 exchange notes
      (incorporated herein by reference to Exhibit 4.6 of our Registration
      Statement on Form F-4, File No. 333-102222).

<PAGE>

2.9   Purchase Agreement, dated as of June 6, 2002, between TFM and Salomon
      Smith Barney Inc. and J.P. Morgan Securities Inc. (incorporated herein by
      reference to Exhibit 10.16 of TFM's Registration Statement on Form F-4,
      File No. 333-102222).

4.1   Concession title granted by the Secretaria de Comunicaciones y Transportes
      ("SCT") in favor of Ferrocarril del Noreste, S.A. de C.V. ("FNE"), 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. 333-8322).

4.2   Amendment dated February 12, 2001 of Concession title granted by SCT in
      favor of TFM, formerly known as FNE, 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   Credit Agreement, dated as of September 19, 2000 among TFM, the several
      Banks parties thereto, Westdeutsche Landesbank Girozentrale, New York
      Bank, as the Issuing Bank, Chase Securities Inc., as Lead Arranger, Banc
      of America Securities LLC and Westdeutsche Landesbank Girozentrale, New
      York Branch as Co-Syndication Agents and Co-Documentation Agents, and The
      Chase Manhattan Bank, as Administration Agent (the "Commercial Paper
      Credit Agreement") (incorporated herein by reference to Exhibit 4.3 from
      TFM and Grupo TFM's Annual Report on Form 20-F for fiscal year 2000).

4.4   Amendment, dated as of December 5, 2000, to the Commercial Paper Credit
      Agreement (incorporated herein by reference to Exhibit 4.4 from TFM and
      Grupo TFM's Annual Report on Form 20-F for fiscal year 2000).

4.5   Second Amendment, dated as of September 25, 2001, to the Commercial Paper
      Credit Agreement (incorporated herein by reference to Exhibit 4.5 from TFM
      and Grupo TFM's Annual Report on Form 20-F for fiscal year 2001).

4.6   Credit Agreement, dated as of September 17, 2002, among TFM, Standard
      Chartered Bank as issuing bank, J.P. Morgan Securities Inc., as joint lead
      arranger and sole book manager, Salomon Smith Barney Inc., as joint lead
      arranger, Bank of America, N.A., Comerica Bank and Landesbank
      Schleswig-Holstein Girozentrale, Kiel, as arrangers, Standard Chartered
      Bank, as arranger and documentation agent, JPMorgan Chase Bank, as
      administrative agent, and the banks named therein (incorporated herein by
      reference to Exhibit 10.8 of our Registration Statement on Form F-4, File
      No. 333-102222).

4.7   First Amendment, dated as of May 2, 2003 to the Credit Agreement, dated as
      of September 17, 2002, among TFM, Standard Chartered Bank as issuing bank,
      J.P. Morgan Securities Inc., as joint lead arranger and sole book manager,
      Salomon Smith Barney Inc., as joint lead arranger, Bank of America, N.A.,
      Comerica Bank and Landesbank Schleswig-Holstein Girozentrale, Kiel, as
      arrangers, Standard Chartered Bank, as arranger and documentation agent,
      JPMorgan Chase Bank, as administrative agent, and the banks named therein
      (incorporated herein by reference to Exhibit 4.7 from TFM and Grupo TFM's
      Annual Report on Form 20-F for fiscal year 2002).

<PAGE>

4.8   Credit Agreement, dated as of September 17, 2002, among TFM, J.P. Morgan
      Securities Inc., as joint lead arranger and sole book manager, Salomon
      Smith Barney Inc., as joint lead arranger, Bank of America, N.A., Comerica
      Bank and Landesbank Schleswig-Holstein Girozentrale, Kiel, as arrangers,
      Standard Chartered Bank, as arranger and documentation agent, JPMorgan
      Chase Bank, as administrative agent, and the banks named therein
      (incorporated herein by reference to Exhibit 10.9 of our Registration
      Statement on Form F-4, File No. 333-102222).

4.9   First Amendment, dated as of May 2, 2003 to the Credit Agreement, dated
      as of September 17, 2002, among TFM, J.P. Morgan Securities Inc., as joint
      lead arranger and sole book manager, Salomon Smith Barney Inc., as joint
      lead arranger, Bank of America, N.A., Comerica Bank and Landesbank
      Schleswig-Holstein Girozentrale, Kiel, as arrangers, Standard Chartered
      Bank, as arranger and documentation agent, JPMorgan Chase Bank, as
      administrative agent, and the banks named therein (incorporated herein by
      reference to Exhibit 4.9 from TFM and Grupo TFM's Annual Report on Form
      20-F for fiscal year 2002).

4.10  Management Services Agreement between TFM and TMM dated May 1997
      (incorporated herein by reference to Exhibit 10.1 of our Registration
      Statement on Form F-4, File No. 333-8322).

4.11  Amendment, dated as of April 30, 2002, to the TMM Management Services
      Agreement (incorporated herein by reference to Exhibit 4.11 from TFM and
      Grupo TFM's Annual Report on Form 20-F for fiscal year 2002).

4.12  Management Services Agreement between TFM and KCS Transportation Company,
      dated May 1997 (incorporated herein by reference to Exhibit 10.2 of our
      Registration Statement on Form F-4, File No. 333-8322).

4.13  Amendment, dated as of April 30, 2002, to the KCS Management Services
      Agreement (incorporated herein by reference to Exhibit 10.15 of our
      Registration Statement on Form F-4, File No. 333-102222).

4.14  Omnibus Agreement among Grupo TFM, Caymex Transportation, Inc., TMM
      Multimodal, S.A. de C.V. and Ferrocarriles Nacionales de Mexico, S.A. de
      C.V. ("FNM"), dated June 9, 1997, together with an English translation
      (incorporated herein by reference to Exhibit 10.5 of our Registration
      Statement on Form F-4, File No. 333-8322).

4.15  Sale Purchase Agreement respecting Capital Stock of FNE, among the United
      Mexican States (through SCT), FNE and FNM, dated December 2, 1996,
      together with an English translation (incorporated herein by reference to
      Exhibit 2.2 of our Registration Statement on Form F-4, File No. 333-8322).

4.16  Sale Purchase Agreement respecting Property and Equipment, among the
      United Mexican States (through SCT), FNE and FNM, dated December 2, 1996,
      together with an English translation (incorporated herein by reference to
      Exhibit 2.3 of our Registration Statement on Form F-4, File No. 333-8322).

4.17  English translation of the Purchase-Sale Agreement, dated July 29, 2002,
      by and between TFM, FNM and Nacional Financiera, S.N.C., Institucion de
      Banca de Desarrollo (incorporated herein by reference to Exhibit 10.16 of
      our Registration Statement on Form F-4, File No. 333-102222).

<PAGE>

4.18  Stock Purchase Agreement, dated as of February 27, 2002, entered into, by
      and among TMM Multimodal, S.A. de C.V., Grupo TMM, S.A. de C.V., The
      Kansas City Southern Railway Company, Kansas City Southern Industries,
      Inc. and TFM, S.A. de C.V. (incorporated herein by reference to Exhibit
      4.11 from TFM and Grupo TFM's Annual Report on Form 20-F for fiscal year
      2001).

4.19  Stock Purchase Agreement, dated as of April 15, 2003, by and among Kansas
      City Southern, Grupo TMM and TFM (incorporated herein by reference to
      Exhibit 10.26 of Grupo TMM's Registration Statement on Form F-4,
      Registration No. 333-112242).

 8.1* List of subsidiaries of TFM.

11.1* English translation of TFM's Code of Ethics.

12.1* Certification of Chief Executive Officer of TFM and Grupo TFM.

12.2* Certification of Chief Financial Officer of TFM and Grupo TFM.

13.1* Certification of Chief Executive Officer and Chief Financial Officer of
      TFM and Grupo TFM, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.

*  Filed herewith.