<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, 2002

                                       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, 2002 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...........................................4
ITEM 2.        OFFER STATISTICS AND EXPECTED TIMETABLE.........................................................4
ITEM 3.        KEY INFORMATION.................................................................................4
ITEM 4.        INFORMATION ON THE COMPANY.....................................................................18
ITEM 5.        OPERATING AND FINANCIAL REVIEW AND PROSPECTS...................................................44
ITEM 6.        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................................................61
ITEM 7.        MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............................................68
ITEM 8.        FINANCIAL INFORMATION..........................................................................73
ITEM 9.        THE OFFER AND LISTING..........................................................................74
ITEM 10.       ADDITIONAL INFORMATION.........................................................................74
ITEM 11.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................86
ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........................................88

                                     PART II

ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES................................................88
ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS...................88
ITEM 15.       CONTROLS AND PROCEDURES........................................................................88
ITEM 16A.      AUDIT COMMITTEE FINANCIAL EXPERT...............................................................89
ITEM 16B.      CODE OF ETHICS.................................................................................89
ITEM 16C.      PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................................................89

                                    PART III

ITEM 17.       FINANCIAL STATEMENTS...........................................................................89
ITEM 18.       FINANCIAL STATEMENTS...........................................................................89
ITEM 19.       EXHIBITS.......................................................................................90
</TABLE>

         In this annual report, references to "$," "$U.S." 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, 2002 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"). 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 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 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 (the "United States");

     -   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, United States ("U.S.") and global economic, political and
         social conditions;

     -   the effects of the North American Free Trade Agreement, or "NAFTA," on
         the level of trade among Mexico, the United States and Canada;

     -   the timing of our receipt of the recent value added tax ("VAT") award;

     -   the effects of our employee training, technological improvements and
         capital expenditures on labor productivity, operating efficiencies and
         service reliability;

     -   changes in governmental regulations or policies;

     -   economic uncertainty caused by the economic slowdown in the United
         States following the terrorist attacks in 2001; and

     -   other factors described in this report.

<PAGE>

                           CERTAIN RECENT DEVELOPMENTS

GRUPO TMM, S.A. ("GRUPO TMM")

         Grupo TMM indirectly owns 51.0% of Grupo TFM's unrestricted voting
shares, giving Grupo TMM voting control of Grupo TFM. During late 2002 and early
2003, Grupo TMM presented various offers to holders of its notes due on May 15,
2003 (the "2003 TMM notes"), in order to extend the maturity date of the issue
through a bond exchange. However, Grupo TMM did not obtain the percentage of
support required for the bond exchange to be completed. The 2003 TMM notes
matured on May 15, 2003 and Grupo TMM has not repaid the principal amount to
date. As a result, Grupo TMM is in default under the terms of the 2003 TMM
notes, and such default has resulted in a cross-default under their notes due in
2006 (the "2006 TMM notes").

         Grupo TMM has stated that it is currently exploring a number of
alternatives regarding its liquidity and that it intends to engage the holders
of the 2003 TMM notes and the holders of the 2006 TMM notes in negotiations over
the terms of a consensual restructuring of such notes.

         With respect to the TFM sale (described below), Kansas City Southern
("KCS") (formerly Kansas City Southern Industries, Inc.) has stated that it
remains firmly committed to proceeding with the transaction. Both Grupo TMM and
KCS are continuing to seek the required shareholder and regulatory approvals for
the TFM sale.

POTENTIAL SALE BY GRUPO TMM OF ITS INTEREST IN GRUPO TFM

         On April 21, 2003, Grupo TMM entered into an acquisition agreement with
KCS (the "acquisition agreement"), which owns a 49.0% voting interest in Grupo
TFM, to sell its entire interest in Grupo TFM, which owns TFM (the "TFM sale").
The acquisition of the shares of Grupo TFM by KCS is structured as a sale of the
stock of Grupo TFM owned by TMM Multimodal, S.A. de C.V. ("TMM Multimodal") to a
subsidiary of KCS. The subsidiary will then merge with and into KCS, which will
be renamed NAFTA Rail Corporation ("NAFTA Rail") and will continue to trade on
the New York Stock Exchange (the "NYSE"). Under the agreement, KCS will acquire
Grupo TMM's interest in Grupo TFM for $200.0 million in cash and 18,000,000
shares of common stock of KCS. KCS has the right to elect to pay up to $80.0
million of the cash portion of the purchase price by delivering shares of KCS
common stock valued for that purpose at $12.50 per share. On June 25, 2003, the
closing price for shares of KCS common stock on the NYSE was $11.80. In
addition, Grupo TMM will have the right to receive an additional amount of up to
$175.0 million in cash ($180.0 million if KCS elects to defer a portion of the
payment) in the event that the pending VAT claim (described herein) against the
Mexican government by TFM is successfully resolved and the amount received is
greater than the purchase price of the "put" rights for the TFM shares held by
the Mexican government. Upon completion of the TFM sale, KCS will assume Grupo
TMM's obligations to make any payment upon the exercise by the Mexican
government of its "put" rights for the 20.0% interest it holds in TFM and will
indemnify Grupo TMM against any obligation or liability relating to the exercise
by the Mexican government of the put rights. Completion of the TFM sale is
subject to approval by the stockholders of KCS and Grupo TMM, receipt of certain
governmental approvals in the United States and Mexico and other customary
conditions.

         In connection with the TFM sale, a consulting company (the
"consultant") organized by Mr. Jose Serrano, Chairman of the Board and Chief
Executive Officer of Grupo TMM and a member of the board of TFM and Grupo TFM,
will enter into a consulting agreement with KCS pursuant to which it will
provide consulting services to KCS in connection with the portion of the
business of KCS in Mexico for a period of three years. As consideration for the
services, the consultant will receive an annual fee of $600,000 per year and a
grant of 2,100,000 shares of restricted stock of KCS. The restricted stock will
vest as follows:

     -   525,000 shares upon the amendment or extension of TFM's current labor
     agreement;

     -   250,000 shares on each of the first, second and third anniversaries of
     the agreement, subject to (x) the successful resolution of the VAT claim
     and (y) the independent directors of KCS not determining that the
     consultant has engaged in certain prohibited conduct;

     -   125,000 shares on the receipt of the VAT certificate; and

     -   700,000 shares on the retirement of the TFM equity held by the Mexican
     government as part of the VAT claim or with the proceeds from the VAT
     claim.

                                       -2-
<PAGE>

         The consulting agreement provides that the vesting of the shares will
accelerate on the termination of the consulting agreement by the consultant due
to a breach by KCS, and certain changes of control of KCS (but only if there is,
or has been, a successful resolution of the VAT claim). The consulting agreement
may be extended for an additional one year at the option of KCS, upon delivery
of an additional 525,000 shares of restricted stock.

         Grupo TMM currently expects that the TFM sale will be completed in the
third quarter of 2003. If the sale occurs, NAFTA Rail will own 75.4% of Grupo
TFM (which owns 80.0% of TFM) and TFM will continue to own 24.6% of Grupo TFM.
The Mexican government will continue to own 20.0% of TFM, until it exercises its
put right. There is no assurance that the process required to obtain the
necessary regulatory approvals will not delay the closing of the TFM sale or
that the TFM sale will occur.

VAT AWARD

         See "Item 9. Financial Information. Consolidated Statements and Other
Financial Information. Legal Proceedings."

ACQUISITION OF MEXICAN GOVERNMENT INTEREST

         We acquired the call option shares through the exercise of an option
(the "call option") held by Grupo TMM, TMM Multimodal, a subsidiary of Grupo
TMM, and Caymex Transportation, Inc. ("Caymex"), a subsidiary of KCS (TMM
Multimodal and Caymex, together with Grupo TMM, the "principal shareholders").
The call option was granted by the Mexican government to the original
shareholders of Grupo TFM in connection with its acquisition of the call option
shares. The principal shareholders exercised the call option and appointed us as
purchaser of all of the call option shares pursuant to an exercise notice given
to the Mexican government on May 29, 2002. We acquired the call option shares
from Ferrocarriles Nacionales de Mexico ("FNM") and Nacional Financiera, S.N.C.
("Nafin") on July 29, 2002 for an aggregate purchase price of $256.1 million.

         The board of directors and shareholders of TFM and the shareholders of
Grupo TFM unanimously approved the offering of the 2012 senior notes and our
purchase of the call option shares.

         As a result of the acquisition of the call option shares, we expect to
achieve financial benefits and we have reduced the Mexican government's
ownership of and involvement in our business.

         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 transfer of
our redundant La Griega- Mariscala track to the Mexican government, together
with cash from our operations.

                                       -3-
<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, 1998, 1999, 2000, 2001 and 2002.
We derived the selected financial data below for the years ended December 31,
2000, 2001 and 2002 from the combined and consolidated audited financial
statements of TFM and Grupo TFM on which PricewaterhouseCoopers, S.C.,
independent accountants, have reported (the "financial statements") included
elsewhere in this report. We derived the selected financial data below for the
years ended December 31, 1998 and 1999 from the combined and consolidated
information prepared to be consistent with the combined and consolidated audited
financial statements of TFM and Grupo TFM for the years ended December 31, 2000,
2001 and 2002 not included in this report. The selected audited financial data
should be read in conjunction with "Item 5. Operating and Financial Review and
Prospects," and the financial statements and notes thereto included elsewhere in
this report.

         The financial statements have been prepared in accordance with
International Accounting Standards ("IAS"), which differ in certain respects
from United States Generally Accepted Accounting Principles ("U.S. GAAP"). Note
11 to the financial statements provides a description of the principal
differences between IAS 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 IAS                                       1998        1999         2000        2001         2002
-------------------------------------------------     --------    --------      -------    --------      -------
                                                           (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                   <C>         <C>          <C>         <C>         <C>
  RESULTS OF OPERATIONS DATA:
  Transportation revenues........................     $479,466    $574,567     $695,425    $720,627    $ 712,140
  Operating expenses.............................      420,220     449,219      530,569     570,500      557,671
  Operating income...............................       59,246     125,348      164,856     150,127      154,469
  Interest expense...............................      104,190     106,538      109,736      87,009      101,722
  Interest income................................        3,958       4,026        2,234       4,510        4,974
  Exchange loss--net.............................      (11,026)        (43)      (1,435)      2,819      (17,508)
  (Loss) income before benefit for deferred
   income taxes..................................      (62,957)     19,012       33,030     104,704       20,599
  Net income (loss) for the period...............     $  9,431    $ 61,305     $ 50,814    $102,154   ($  11,350)
                                                      ========    ========     ========    ========    =========
  Operating income per share.....................       0.0428      0.0906       0.1191      0.1085       0.1116
  Net income (loss) for the period per share(1)..     $ 0.0068    $ 0.0443     $ 0.0367    $ 0.0738    $ (0.0082)
                                                      ========    ========     ========    ========    =========
</TABLE>

                                       -4-
<PAGE>

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------------------------------------
AMOUNTS UNDER IAS                                         1998           1999            2000            2001           2002
----------------------------------------------------  ------------    ------------   ------------    ------------   ------------
                                                                    (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                   <C>             <C>            <C>             <C>            <C>
OTHER FINANCIAL DATA:
   Depreciation and amortization....................  $     71,544    $     73,235   $     76,626    $     78,345   $     81,401
   Capital expenditures.............................       111,012          55,967         66,918          85,245         89,355
   Net cash provided by (used in)...................
     Operating activities...........................        78,914          92,420        176,701         120,052        125,250
     Investing activities...........................       (98,603)        (22,671)       (59,765)        (83,233)      (295,288)
     Financing activities...........................        19,599         (64,851)       (99,427)        (29,383)       159,681

BALANCE SHEET DATA (AT END OF PERIOD):
   Total assets.....................................  $  2,782,407    $  2,786,597   $  2,804,115    $  2,956,042   $  2,841,011
   Total debt and capital lease obligations(2)......       898,027         869,321        815,551         838,011      1,023,105
   Total liabilities.............................        1,016,717         959,602        926,306         976,079      1,192,579
   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.......................  $  1,765,690    $  1,826,995   $  1,877,809    $  1,979,963   $  1,648,516
                                                      ------------    ------------   ------------    ------------   ------------
AMOUNTS UNDER U.S. GAAP

  Stockholders' equity (at end of period)...........  $  1,752,814    $  1,758,116   $  1,811,679    $  1,903,599   $  1,740,714
  Net (loss) income for the period..................        (6,445)          5,302         53,563          91,919        136,655
                                                      ============    ============   ============    ============   ============
  Net (loss) income for the period per share(1).....  $    (0.0046)   $     0.0038   $     0.0387    $     0.0664   $     0.0987
                                                      ============    ============   ============    ============   ============
</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 IAS                                         1998           1999            2000            2001           2002
-------------------------------------------------     ------------    ------------   ------------    ------------   ------------
                                                                    (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                   <C>             <C>            <C>             <C>            <C>
   Transportation revenues.......................     $    479,466    $    574,567   $    695,425    $    720,627   $    712,140
   Operating expenses............................          421,371         450,370        531,720         571,651        558,822
   Operating income..............................           58,095         124,197        163,705         148,976        153,318
   Interest expense..............................          100,375         106,538        109,739          87,009        101,722
   Interest income...............................              148           4,026          2,238           4,510          4,974
   Exchange loss--net............................          (10,865)            (75)        (1,424)          2,783        (17,411)
   (Loss) income before benefit for deferred
    taxes and minority interest..................          (59,859)         19,162         33,206         104,832         19,904
   (Loss) income before minority interest........           13,999          59,597         51,474         102,180        (10,329)
   Net (loss) income for the period..............     $     12,113    $     47,335   $     41,311    $     81,749   $     (7,988)
                                                      ============    ============   ============    ============   ============
   Operating income per share....................           5.7728         12.3412        16.2671         14.8035        17.0144
   Net (loss) income for the period per share(1).     $     1.2036    $     4.7036   $     4.1050    $     8.1233   $    (0.8865)
                                                      ============    ============   ============    ============   ============
OTHER FINANCIAL DATA:
   Depreciation and amortization.................     $     72,695    $     74,386   $     77,777    $     79,496   $     82,552
   Capital expenditures..........................          111,012          55,967         66,918          85,245         89,355
   Net cash provided by (used in)
     Operating activities........................           77,874          92,436        176,707         132,547        112,746
     Investing activities........................          (98,603)        (22,671)       (59,765)        (83,233)      (295,288)
     Financing activities........................           19,599         (64,851)       (99,427)        (29,383)       159,681
</TABLE>

                                       -5-
<PAGE>

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------------------------------------
AMOUNTS UNDER IAS                                         1998           1999            2000            2001           2002
----------------------------------------------------  ------------    ------------   ------------    ------------   ------------
                                                                    (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S>                                                   <C>             <C>            <C>             <C>            <C>
BALANCE SHEET DATA (AT END OF PERIOD):
   Total assets.....................................  $  2,176,512    $  2,178,374   $  2,196,555    $  2,348,512   $  2,234,545
   Total debt and capital lease obligations(2)......       898,027         869,321        815,551         838,011      1,023,105
   Total liabilities................................     1,017,337         959,602        926,311         976,088      1,192,582
   Common stock authorized, issued and
    outstanding(3)..................................

                                                           807,008         807,008        807,008         807,008        807,008
   Total stockholders' equity.......................  $    806,037    $    853,372   $    894,683    $    976,432   $    712,344
                                                      ------------    ------------   ------------    ------------   ------------
AMOUNTS UNDER U.S. GAAP

Stockholders' equity (at end of period).............  $    795,736    $    798,268   $    841,780    $    915,341   $    785,872
Net (loss) income for the period....................         1,812           2,532         43,512          73,561        110,184
                                                      ============    ============   ============    ============   ============
Net (loss) income for the period per share(1).......  $     0.1800    $     0.2516   $     4.3237    $     7.3096   $    12.2276
                                                      ============    ============   ============    ============   ============
</TABLE>

-----------------
(1)  The weighted average number of shares outstanding was 10,063,570 in 1998,
     1999, 2000, and 2001 and 9,011,069 in 2002 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 1998, 1999, 2000 and 2001 and 9,011,069 in 2002.

                  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 25, 2003, the
         noon buying rate was Ps.10.48 per Dollar.

EXCHANGE RATES

<TABLE>
<CAPTION>
                                                                                   YEAR/MONTH-END         PERIOD
YEAR ENDED DECEMBER 31,                          HIGH                LOW              AVERAGE               END
---------------------------------------          ----                ---              -------               ---
<S>                                             <C>                 <C>            <C>                    <C>
1998 ..................................         10.63                8.04               9.25                9.90
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
December 2002..........................         10.43               10.10              10.23               10.43
January 2003...........................         10.98               10.32              10.62               10.90
February 2003..........................         11.06               10.77              10.95               11.03
March 2003.............................         11.24               10.32              10.91               10.78
April 2003.............................         10.77               10.31              10.59               10.31
May 2003 ..............................         10.42               10.11              10.25               10.34
</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.

                                       -6-
<PAGE>

D.       RISK FACTORS

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, 2002, TFM had total outstanding indebtedness of
$1,023.1 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 new bank facilities
(the "commercial paper program" and the "term loan facility"). TFM has no
secured indebtedness. TFM's stockholders' equity was $1,648.5 million as of
December 31, 2002, resulting in a debt to equity ratio of 0.6%. Grupo TFM's
stockholders' equity was $712.3 million as of December 31, 2002, resulting in a
debt to equity ratio of 1.4%. In addition, TFM may incur more debt, subject to
the restrictions contained in the indentures governing the securities and the
credit agreements governing TFM's new commercial paper program and term loan
facility. As of December 31, 2002, there was $122.0 million outstanding under
the commercial paper program and $128.0 million outstanding under the 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 may be unable to refinance the commercial paper program or we may
not have sufficient cash to repay this debt when it becomes due. These events
could result in a default under the respective indentures governing the
securities as well as the agreements governing the 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 new 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:

                                       -7-
<PAGE>

         -   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.

OUR BUSINESS IS CAPITAL INTENSIVE AND WE MUST MAKE SIGNIFICANT ADDITIONAL
CAPITAL EXPENDITURES; FAILURE TO MAKE SUCH ADDITIONAL 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, 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 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

                                       -8-
<PAGE>

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 2000, 2001 and 2002 we made capital expenditures of $66.9 million,
$85.2 million and $89.4 million, respectively, which represented 9.6%, 11.8% and
12.5% of our transportation revenues for each of those years, respectively. We
expect to make capital expenditures for the years ended 2003 and 2004 in an
amount equal to approximately 10.0% of our transportation revenues on an annual
basis. These capital expenditures include the expenses we expect to incur for
the rehabilitation and improvement of our secondary rail lines and the
construction of new intermodal terminals near the manufacturing plants of our
automotive customers. 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 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.

         In February 2001, a NAFTA tribunal ruled in an arbitration between the
United States and Mexico that the United States must allow Mexican trucks to
cross the border and operate on U.S. highways. NAFTA called for Mexican trucks
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 United States has
not followed 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 United States-Mexico border. These safety rules require Mexican
carriers seeking to operate in the United States 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, a
coalition of environmental, consumer and labor groups brought legal action
against the U.S. Department of Transportation alleging that the rules violated
federal environmental laws due to the failure of the U.S. Department of
Transportation to adequately review the impact on air quality in the United
States once Mexican carriers were allowed to transport beyond the 20-mile
commercial zones along the United States-Mexico border. In April 2003, the Ninth
Circuit of the U.S. Court of Appeals in San Francisco upheld a prior ruling
which 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 matter has now been remanded to the U.S.
Department of Transportation so that it may prepare the required Environmental
Impact Statement and ensure conformity with the U.S. Clean Air Act. We cannot
assure you that truck transport between Mexico and the United States 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.

         Since a key element of our business strategy is to recapture market
share lost to the trucking industry, our inability to successfully convert
traffic from truck to rail transport would materially impair our ability to
achieve our strategic objectives. 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.

                                       -9-
<PAGE>

         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. Also in direct competition for traffic to
and from southeastern Mexico is Ferrocarril del Sureste, S.A. de C.V.
("Ferrosur"), which operates the Southeast Rail Lines. 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 between Mexico City and the United States. 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 lose
the flexibility of using our tracks at certain 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 limits competition. The
acquisition was reviewed by the Mexican Antitrust Commission and on May 16, 2002
the Mexican Antitrust Commission announced that it has 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 that the Federal Courts in Mexico review the decision of the Mexican
Antitrust Commission. The Mexican Antitrust Commission is currently conducting
such review. If the acquisition is completed, the resulting railroad would
operate the largest rail system in Mexico, and we cannot assure you that this
would not have a material adverse effect on our operations, particularly on the
revenues generated by our route between Mexico City and the port of Veracruz.

         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. See also "Certain Recent Developments. Potential
Sale by Grupo TMM of its Interest in Grupo TFM."

         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.

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.

                                      -10-
<PAGE>

         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;

         -   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 a
Mexican federal court. Such federal court has suspended the rulings issued by
the Ministry of Transportation until such court makes definitive rulings.

         In September 2001, Ferromex filed a civil lawsuit against us relating
to the payments that we and Ferromex are required to make to each other for
interline services and haulage and trackage rights. We believe that this legal
claim is without merit. On September 25, 2002, the third civil court of Mexico
City rendered its judgment in our favor. Ferromex subsequently appealed the
decision before an appellate court in Mexico. On January 15, 2003, the appellate
court also rendered judgment in our favor. On February 7, 2003, Ferromex
initiated an amparo proceeding before the appropriate federal court in Mexico,
requesting that such court review the appellate court decision. Such proceeding
is currently still in progress.

         We cannot predict whether we will ultimately prevail in any of these
matters. We believe that, even if the rates established in the rulings issued by
the Ministry of Transportation go 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. However, we cannot
guarantee that our competitors' usage of our rail lines will not result in our
losing business or that our losses will be offset by revenues generated from the
payments for the rights to use our tracks. The occurrence of any of these events
could have a material adverse effect on our results of operations.

RECENT TERRORIST ACTIVITIES IN THE UNITED STATES AND THEIR CONSEQUENCES COULD
ADVERSELY AFFECT OUR OPERATIONS.

         As a result of the terrorist attacks in New York, Washington, D.C., and
Pennsylvania on September 11, 2001, there was 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 United States 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. In addition,
related political events may cause

                                      -11-
<PAGE>

a lengthy period of uncertainty that may adversely affect our business. There
can be no assurance that there will not be further large-scale terrorist
attacks. Political and economic instability in other regions of the world,
including the United States 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, UNITED STATES-MEXICO
TRADE OR CERTAIN CYCLICAL INDUSTRIES IN WHICH OUR CUSTOMERS OPERATE 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 TFM's 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 United States and Mexico will
likely have adverse effects on our business and results of operations. Mexican
exports to the United States 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 United States-Mexico trade. In
addition, a significant portion of our business consists of imports into Mexico
from the United States. 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 United States 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 United States-Mexico trade
and the development 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 70.0% of our employees are covered by a labor agreement.
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

                                      -12-
<PAGE>

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 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.

                                      -13-
<PAGE>

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.

CONFLICTS MAY ARISE INVOLVING OUR STRATEGIC PARTNERS.

         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 (as defined herein) 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 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 KCS' subsidiary,
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.

         Both Grupo TMM and KCS periodically re-evaluate their businesses and
make changes, including acquisitions or divestitures, which they believe to be
consistent with their corporate objectives. In 2000, KCS spun off its financial
asset management and related operations through a distribution of the common
stock of its former subsidiary, Stilwell Financial, Inc., which owns Janus
Capital Corporation. As a result, KCS currently engages only in rail
transportation activities. 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. ("TMM PyT") in May 2003.

         On April 21, 2003, Grupo TMM entered into the acquisition agreement
with KCS, pursuant to which KCS will acquire all of the outstanding shares of
Grupo TFM, which are owned by TMM Multimodal. The acquisition of the shares of
Grupo TFM by KCS is structured as a sale of the stock of Grupo TFM owned by TMM
Multimodal to a subsidiary of KCS. The subsidiary will then merge with and into
KCS, which will be renamed NAFTA Rail and will continue to trade on the NYSE.
See "Certain Recent Developments. Potential Sale by Grupo TMM of its Interest in
Grupo TFM." As part of the transaction, KCS will assume the outstanding
contingent obligations of Grupo TMM to purchase shares of TFM held by the
government of Mexico upon exercise of a put by the Mexican government. See "Item
5B. Liquidity and Capital Resources. Contractual Obligations. Mexican
Government's Put Option." The transaction requires approval by the stockholders
of KCS and the stockholders and bondholders of Grupo TMM and certain
governmental approvals, including approval of the Mexican Antitrust Commission
and the Comision Nacional de Inversiones Extranjeras (the Mexican Foreign
Investment Commission). In addition, the investors under Grupo TMM's receivables
securitization program hold, through a trust, an option to acquire the shares of
Grupo TFM owned by TMM Multimodal, which may be exercised upon the occurrence of
certain events under such securitization. In the event of the TFM sale, the
option under such securitization will be terminated or amended. We cannot assure
you that Grupo TMM will continue to retain any of its joint venture interests or
continue to own any of its subsidiaries, including its interest in Grupo TFM, or
that KCS will continue to own KCSR, its other subsidiaries or its interest in
Grupo TFM. A change in the corporate structure of our strategic partners may
also adversely affect our operations.

                                      -14-
<PAGE>

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 United States 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.

IF OUR PRIMARY FUEL SUPPLY CONTRACT IS TERMINATED, OR IF FUEL PRICES
SUBSTANTIALLY INCREASE, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.

         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 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 a
decrease of 8.7% in 2001, and increases of 61.3% and 21.6% in 2000 and 1999,
respectively, in our average price of fuel per gallon. In 2002, our average
price of fuel per gallon decreased by 11.2% from 2001. The price of diesel fuel
may 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 operation, 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.

                                      -15-
<PAGE>

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.

         We are responsible for the costs of environmental compliance associated
with our ongoing operations. Pursuant to our concession, FNM is responsible for
any environmental damage caused before the commencement of our operations, and
both the Mexican government and FNM 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.

         We acquired 100.0% of the outstanding shares of Mexrail, Inc.
("Mexrail") in February 2002 and sold 51.0% of our equity interest in Mexrail to
KCS in May 2003. As a result of our ownership interest in 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 exercises significant influence over the Mexican
economy. Accordingly, 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 the securities.
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

                                      -16-
<PAGE>

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 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 recent years has been appreciating relative to the Dollar,
the Peso depreciated 13.9% against the Dollar from December 2001 to December
2002. 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 United States 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
annual rates of inflation, as measured by changes in the Mexican National
Consumer Price Index, for the five years from 1998 through 2002 as provided by
Banco de Mexico, Mexico's central bank, were:

<TABLE>
<S>                                   <C>
1998................................  18.6%
1999................................  12.3%
2000................................   9.0%
2001................................   4.4%
2002................................   5.7%
</TABLE>

         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 United States 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 the securities. 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.

                                      -17-
<PAGE>

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 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 government and (3) equity
capital contributed by TMM, Grupo Servia and KCS.

                                      -18-
<PAGE>

         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. The Mexrail stock sold by TFM will 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 shall
retain the right to repurchase all of the shares from KCS at any time for an
amount equal to the purchase price. Such right shall be unconditional and may 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.
Proceeds from the sale were re-invested in TFM. 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. Proceeds from the sale were re-invested in TFM.

PASSENGER TRANSPORT

         Under the concession, the Mexican government has specifically reserved
the right to grant exclusive rights to provide passenger service over our rail
lines to a concessionaire other than TFM. Since we commenced operations, the
Mexican government has provided a minimal level of passenger train service to
certain areas within our service territory under an arrangement in which FNM is
responsible for the management of all passenger cars and related personnel
necessary for the provision of such service. Our obligation with respect to the
provision of passenger service by FNM is limited to providing FNM with
locomotive power, engineers and dispatching services for which we are
reimbursed.

         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.

See also "Certain Recent Developments. Grupo TMM and Potential Sale by Grupo TMM
of its Interest in Grupo TFM."

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 United States is 011-525-55-447-5836. We have no
general agent for service of process in the United States.

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,
                                                     ------------------------------------------
                                                     2002                 2001            2000
                                                     -----               -------          -----
<S>                                                  <C>                 <C>              <C>
                                                               (in millions of Dollars)
CAPITAL EXPENDITURES BY AREA
    Locomotives and freight cars................     $12.2               $  11.1          $10.3
    Rail track(1)...............................      70.5                  68.9           46.9
    Telecommunication...........................       3.0                   3.2            4.8
    Other.......................................       3.7                   2.0            4.9
                                                     -----               -------          -----
    Total.......................................     $89.4               $  85.2          $66.9
                                                     =====               =======          =====
</TABLE>

-------------------------
(1) In 2002, our capital expenditures were primarily $35.8 million for the
rehabilitation of our route between Mexico City and Lazaro Cardenas, among other
rail lines, $5.3 million for the construction of the Sanchez freight yard, $6.6
million for the construction of the Monterrey Intermodal Terminal and $8.0
million for the construction of the Toluca Intermodal Terminal. In 2001, our
capital expenditures were primarily $29.6 million for the rehabilitation of

                                      -19-
<PAGE>

the Lazaro Cardenas line, $9.0 million for the rehabilitation of the main line
of the Texas Mexican Railway Company, $9.0 million for the purchase of the
Rosenburg-Victoria line and right of way from the Union Pacific Railroad and
$9.9 million for locomotive overhaul expenses. In 2000, our capital expenditures
were primarily $6.0 million for the rehabilitation of the Ajuno-Celaya and
Manto-Acambaro lines, $6.4 million for the rehabilitation of the Lazaro Cardenas
line, among other rail lines, $2.6 million for the construction of the Maclovio
Herrera Terminal, $3.8 million for the construction of the Ramos Arizpe support
yard, $4.2 million for the Monterrey Intermodal Terminal (land acquisition) and
$14.5 million for the Toluca Intermodal Terminal (land acquisition).

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                  --------------------------------------------------
                                                   2002                 2001(1)              2000(2)
                                                  ------                -------              -------
                                                                (in millions of Dollars)
<S>                                               <C>                   <C>                  <C>
CAPITAL DIVESTITURES
     Freight cars...........................      $  5.1                $  4.5               $  12.3
     Concession equipment...................         1.9                   3.4                  16.9
     Other assets...........................          .5                   1.7                   1.2
                                                  ------                ------               -------
    Total...................................      $  7.5                $  9.6               $  30.4
                                                  ======                ======               =======
</TABLE>

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

(2)  In 2000, the divestiture of concession equipment included $5.1 million of
concrete and wood ties and $11.8 million of rail and other track material.

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 United States and Canada. Our rail lines consist
of 4,244 kilometers (2,637 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 United States at Laredo, Texas and Mexico
at Nuevo Laredo, Tamaulipas. We are the only Mexican railroad that serves the
main United States-Mexico border crossing at Laredo-Nuevo Laredo, which is the
largest freight exchange point between the United States and Mexico. In
addition, we serve three of Mexico's four primary 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,

                                      -20-
<PAGE>

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 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 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 in accordance with a business plan approved by the Mexican government.
We are also responsible for compliance with efficiency and

                                      -21-
<PAGE>

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 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.

                                      -22-
<PAGE>

         -   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. Mexican foreign trade increased
             at an average annual rate of 18.8% from 1992 to 2000, increasing by
             15.1% in 1999 from 1998, and by 22.5% in 2000 from 1999.
             Notwithstanding a decrease of 4.1% in Mexican foreign trade in 2001
             from 2000 as a result of the slowdown of the U.S. and global
             economies, Mexican foreign trade increased 0.77% in 2002 from 2001.
             We expect to continue to participate significantly over the long
             term in the growth in NAFTA traffic between Mexico, the United
             States 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.

         -   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 2002, our operating ratio was 78.3%, 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 United States. 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 3,371 employees as of December 31,
             2002;

         -   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;

                                      -23-
<PAGE>

         -   extensively overhauled the locomotives and rolling stock we
             acquired from the government; for example, since 1997 we have
             acquired 6,800 railcars under operating leases and anticipate
             acquiring approximately 900 more railcars under operating leases in
             2003;

         -   upgraded our rolling stock and introduced state-of-the-art
             locomotives that comply with U.S. standards, thereby allowing them
             to operate in the United States, 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, 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 2002, our total revenues were $712.1 million, representing a 1.2%
decrease from 2001. Our revenues are derived from the movement of a diversified
mix of commodities and products predominantly attributable to cross-border
traffic with the United States. Our customers include leading international and
Mexican corporations. Approximately 79.2% of our total revenues in 2002 was
attributable to international freight. The majority of this international
freight was bound to or from the United States and Canada, crossing the United
States-Mexico border at Nuevo Laredo, and most of the remainder came from
overseas, principally through Mexico's seaports.

         Imports into Mexico from the United States, Canada and overseas
represented approximately 56.1%, 55.4% and 54.1% of our total revenues in 2000,
2001 and 2002, 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 and
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.

                                      -24-
<PAGE>

         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 2000, 2001 and 2002.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                 ----------------------------------------------------------------------------------------
                                            2000                           2001                           2002
                                 --------------------------        ----------------------        ------------------------
                                                 PERCENT OF                    PERCENT OF                      PERCENT OF
                                 CARLOADS         CARLOADS         CARLOADS     CARLOADS         CARLOADS       CARLOADS
                                 --------        ----------        --------    ----------        --------      ----------
<S>                              <C>             <C>               <C>         <C>               <C>           <C>
TRAFFIC
Local........................     566,495            79.3%          574,620        79.5%         591,267          79.4%
Interline originated.........     100,233            14.0           101,588        14.1          103,936          14.0
                                  -------           -----           -------       -----          -------         -----
   Total originated..........     666,728            93.3           676,208        93.6          695,203          93.4
                                  -------           -----           -------       -----          -------         -----
Interline received...........      47,698             6.7            46,500         6.4           48,846           6.6
Transient....................          39             0.0                 0         0.0                0           0.0
                                  -------           -----           -------       -----          -------         -----
   Total received............      47,737             6.7            46,500         6.4           48,846           6.6
                                  -------           -----           -------       -----          -------         -----
    Total....................     714,465           100.0%          722,708       100.0%         744,049         100.0%
                                  =======           =====           =======       =====          =======         =====
</TABLE>

Core Routes

         Our rail lines comprise four 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 United States-Mexico border crossing at Nuevo Laredo, the most important
interchange for freight between the United States 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 2000, 2001 and during 2002, 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 United States. 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 58.0% of total revenues in 2000, 56.3% of total revenues in 2001
and 49.0% of total revenues in 2002.

         Products transported through Nuevo Laredo include finished vehicles and
auto parts, grain, appliances, beer, chemicals, scrap paper and plastics. In
2000, 2001 and 2002, rail traffic representing $371.5 million, $376.2 million
and $412.9 in revenues, respectively, was transported through Nuevo Laredo on
our rail lines, of which approximately 60.9%, 60.0% and 62.4%, respectively,
consisted of import traffic. In 2001, our revenues generated by this route
increased by approximately 3.75% from 2000. In 2002, our revenues generated by
this route increased by approximately 9.8% from 2001.

         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 2000, 2001 and 2002, rail traffic representing $49.0 million, $45.6
million and $37.4 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 2000, 2001 and 2002, we transported rail traffic representing
$33.2 million, $28.5 million and $33.6 million in revenues, respectively,
through Veracruz, of which approximately 92.2%, 85.5% and 78.9%, 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
United States. 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

                                      -25-
<PAGE>

Pacific Railroad. In 2000, 2001 and 2002, rail traffic representing $35.5
million, $38.5 million and $46.6 million in revenues, respectively, 93.9%, 95.6%
and 80.6%, respectively, which consisted of import traffic, crossed the
Matamoros gateway. Freight traffic through Matamoros includes grains, steel
coils, metal scrap, chemicals and iron slabs.

         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
punctual and more efficient than that previously provided by FNM, and that FOR
THE YEAR ENDED DECEMBER 31, 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
commenced 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 a minor decrease in
revenue of 1.0% to $660.5 million in 2002 from 2001. Our revenue increases in
recent years have resulted primarily from the growth of trade between Mexico and
the United States as a result of NAFTA and U.S. economic growth during this
period. Traffic volumes in all of our product categories increased significantly
during this period, particularly in the automotive, industrial and intermodal
product segments. Beginning in December 2000, the rate of growth of our revenues
has been adversely affected by decreased demand due to the U.S. economic
slowdown.

         The following table sets forth, by product category, our revenues and
traffic volumes by carloads for 2000, 2001 and 2002.

<TABLE>
<CAPTION>
                                                             FOR THE YEAR ENDED DECEMBER 31,
                             ----------------------------------------------------------------------------------------------
                                         2000(1)                            2001                            2002
                             -------------------------------   -----------------------------  -----------------------------
                                                     % 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>
Industrial products, metals
   and minerals............   203,348     $175.7      27.4%    196,119    $ 176.9      26.5%   227,067    $ 195.6     29.6%
Automotive products........   138,172      159.5      24.9     150,987      171.4      25.7    131,926      154.1     23.3
Agro-industrial products...   132,102      161.9      25.3     136,000      167.4      25.0    110,956      140.8     21.3
Chemical and petrochemical
   products................    66,369       89.2      13.9      77,159       98.6      14.8     83,406      107.7     16.3
Intermodal freight.........   146,293       38.8       6.1     162,443       42.6       6.4    190,694       56.3      8.5
Other......................    28,181       15.5       2.4           0       10.9       1.6          0        6.0      0.9
                              -------     ------     -----     -------    -------     -----    -------    -------    -----
TFM........................   714,465     $640.6     100.0%    722,708    $ 667.8     100.0%   744,049    $ 660.5    100.0%
Texas Mexican Railway
  Company..................    87,057       54.8                92,194       52.8               91,550       51.6
                              -------     ------               -------    -------              -------    -------
     Total TFM                801,522     $695.4               814,902    $ 720.6              835,599    $ 712.1
                              =======     ======               =======    =======              =======    =======
</TABLE>

----------------------
(1) "Other" carloads for 2000 represents unallocated carloads for various
categories. The non-allocation of such amounts would not significantly affect
the carload amounts for the remaining categories in 2000.

         Manufactured Products, Industrial Products, Metals and Minerals

         In 2002, $195.6 million, or 29.6% of our total transportation revenues,
were derived from the movement of industrial products, metals and minerals, an
increase of 10.6% over revenues generated in this product category in 2001.

                                      -26-
<PAGE>

         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 United States by Grupo Modelo, S.A.
de C.V. and Cerveceria Cuauhtemoc Moctezuma, S.A. de C.V., the makers of
"Corona" and "Dos Equis," respectively. In addition, in 2000 we entered into a
long-term contract with Organizacion Mabe Corporacion, S.A. de C.V. ("Mabe") to
transport all of the products it exports to the United States and most of the
products it distributes domestically. Mabe is a major Mexican 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 United States
under the "GE" brand. Although Mabe did not use rail as its main mode of
transport prior to our commencement of operations, it currently moves close to
90.0% of its products by rail. In 2000, Mabe completed construction of a new
plant in Celaya which produces GE refrigerators and started transporting its
products from that plant over our rail lines in February of 2001.

         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 United States and Texas to paper mills, newspaper publishers and
printers in major population centers in Mexico. Large volumes of paper products
are manufactured in Mexico at plants near our rail lines by companies such as
Kimberly-Clark de Mexico, S.A. de C.V., Corporativo Copamex, S.A. de C.V. and
Grupo Industrial Durango, S.A. de C.V. for domestic and international
consumption or are exported to Mexico by U.S. paper companies such as Tetrapak,
Westvaco (Packing), International Paper, Georgia Pacific and Wyerhauser.

         Metals and Minerals

         This product segment 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 the majority of finished
products from these mills, including large amounts of steel products, are
exported to manufacturers in the United States, while the remainder is used
domestically. We also seek to convert the traffic flowing from the mines,
quarries and smelters in Mexico's northern states to 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
United States. We also transport steel wire cable which was previously moved by
ship from the port of Lazaro Cardenas to the United States, finished goods for
domestic steel producers, and raw materials for U.S. steel manufacturers that
import raw materials from Mexico to the United States and export their finished
products from the United States 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 United States. Three major companies in Mexico which move

                                      -27-
<PAGE>

their products with us are Cemex, S.A. de C.V. ("Cemex"), Cementos Apasco, S.A.
de C.V. and Cementos Cruz Azul, Sociedad Cooperativa. Due to its bulk and
density, cement is ill-suited to road transport and, as a result, is hauled
almost exclusively by rail.

         From 1998 through 2001, we experienced a decline in the volume of
metals and minerals cargo transported on our rail lines due primarily to a
decline in domestic steel production and the loss of one of our major steel
customers to competition from Ferromex. In 2001, Mexican steel producers
continued maintaining significantly low production levels due to the adverse
effects of higher natural gas prices, and the continued appreciation of the Peso
against the Dollar during the year. The combination of these two factors have
made Mexican steel prices less competitive in the international market, causing
many U.S. steel customers to import steel from Asia and countries that formerly
were part of the Soviet Union instead of Mexico. The general slowdown of the
U.S. and Mexican economies, particularly in the automotive and construction
industries, has also had a negative effect on the import and export of finished
products such as steel coils. In 2002, our revenues in this segment were
positively impacted by the growth experienced by Cemex, primarily due to an
increase in its domestic business. We also experienced a growth of scrap metal
imports for domestic consumption and an increase of truck to rail conversions
for iron sheets.

         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 United States 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 United
States and Canada, we believe that we are the preferred rail carrier for
automotive products along this route.

         In 2002, $33.9 million, or 81.0% of the transportation revenues
generated by our Mexico City-Nuevo Laredo route and 23.3% of our total
transportation revenues, were derived from the transport of automotive products.
Our automotive revenues decreased by approximately 10.1% in 2002 from 2001. This
revenue reduction was a consequence of the decline in production due to the
continued recession in the United States. In 2002, this segment experienced a
negative impact as a result of the closure of the DaimlerChrysler AG
("DaimlerChrysler") plant in Lago Alberto, and the subsequent relocation of its
production facilities to Encantada and Coahuila. Also during 2002, Ford reduced
exports from its Cuautitlan plant. In 2002, DaimlerChrysler, General Motors
Corp. ("General Motors"), Ford Motor Company, and Volkswagen were among our most
significant customers, together representing approximately 20.6% of our total
revenues.

         Automobiles and other automotive products continue to be a mainstay of
Mexican manufacturing, and we believe they represent a growth opportunity for
both imports and exports over the long term. However, in 2002, we experienced a
decrease in our automotive revenues as compared to 2001 due to the U.S. economic
slowdown, as exports by auto manufacturers including DaimlerChrysler and General
Motors grew at a lesser rate, reflecting the slowdown in the U.S. market.

         Nonetheless, we believe that auto production in Mexico will continue to
experience growth over the long term, resulting in an increase in traffic of
imports and exports along our rail lines. We also believe that there is
potential for growth in the domestic automobile market as well as in the
movement of finished vehicles to the seaports we serve for export to markets
including the European Union. Through our automotive ramps at Monterrey and
Veracruz as well as our specialized car carriers, we believe that we are
enhancing 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 2002, $140.8 million, or approximately 21.3% of our total
transportation revenues, were derived from the movement of agro-industrial
products, which represented a decrease of 15.9% from our agro-industrial
revenues in 2001. A number of factors contributed to this segment's revenue
decrease. Extraordinary weather conditions reduced agro-industrial results in
2002. We were negatively affected by the reduction of basic grain imports due to

                                      -28-
<PAGE>

severe droughts in the United States and Canada. Additionally, the transport of
domestic grain products was severely affected by the worst grain crop in the
last 15 years.

         The United States 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 United States
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.

         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.

         Strong positive macroeconomics trends support resumption of growth in
the agro-industrial segment. Estimated population growth from 2.0% in 2002 to
3.0% in 2003 and the elimination of tariffs on imports in 2003 for the first
time under NAFTA may provide us with opportunities for growth.

         Chemical and Petrochemical Products

         In 2002, $107.7 million, or 16.3% of our total transportation revenues,
were derived from the movement of chemical and petrochemical products. Our
revenues in this segment increased by 9.2% in 2002 from 2001. Although this
segment has been substantially affected by the economic slowdown in both the
Mexican and U.S. economies, strong performance in the transportation of certain
chemical and petrochemical products, such as plastics and petroleum coke, has
partially offset the effects of the economic downturn. Transportation of
exported and imported plastics contributed substantially to revenue growth
during 2002, mainly as a result of conversion from truck to rail transport.
Another important contributor to revenue growth during this period was the
increased transportation of petroleum coke for Cemex, which is converting many
of its plants from fuel oil combustion to petroleum coke combustion.

         The chemical and petrochemical products we transport consist of
petrochemical products imported from the United States 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. We believe that a wide range of chemical and
petrochemical products currently transported to and from Mexico by truck can be
converted to rail. We see growth potential in the movement of large volumes of
petrochemicals from plants in Tampico-Altamira, Coatzacoalcos and Mexico City to
the Houston petrochemical market. We anticipate converting other petrochemical
products such as solvents and liquid petroleum gas from truck to rail transport.

         In addition, we see growth potential with respect to the large volumes
of resin, lubricants and other raw materials imported into Mexico from the
Houston area for use in the production of plastic products and lubricants.
Shippers of chemical and petroleum products located along our rail lines (some
of which are our customers) include Pecten, S.A. de C.V., Indelpro, S.A. de
C.V., Colgate Palmolive, S.A. de C.V., PPG Industries de Mexico, S.A. de C.V.,
Procter & Gamble de Mexico, S.A. de C.V., Petrocel Chemicals and Exxon Mobil. We
believe that growth in this area will come primarily from increasing cargo
volumes transported for our existing customers as well as from converting
companies such as BASF Mexicana, S.A. de C.V., Agroindustrias Unidas de Mexico,
S.A. de C.V., Dupont, S.A. de C.V., and Polioles, S.A. de C.V. which import a
variety of petrochemical products used in the production of plastic. We also see
growth potential in the large quantities of tereftalic acid, used to make
synthetic fibers such as nylon, which are transported from manufacturing plants
in Tampico to the Pacific port of Manzanillo for export to the Far East.

         We believe that shippers moved such traffic by truck and barge because
FNM was unable to ensure safe, punctual and efficient delivery of these
products. We also believe that our current operations, including train-truck
transloading delivery to smaller customers located along our rail lines but
lacking their own rail delivery facilities, enable us to meet the needs of
shippers of these products. Our rail lines provide access to these producers
and,

                                      -29-
<PAGE>

together with the Texas Mexican Railway Company, enable these producers to
access the Houston and Louisiana chemical and petroleum markets.

         We believe that we are in a position to attract significant business
from PEMEX, which owns plants and refineries throughout Mexico. PEMEX currently
imports significant amounts of gasoline and diesel fuel from Houston and Corpus
Christi which is then transported by truck to the main PEMEX distribution center
in central Mexico for shipment to PEMEX plants and refineries throughout Mexico.
We have succeeded in converting some of this traffic to rail since our
commencement of operations. However, since PEMEX is a government entity, we
cannot assure that our current contract with PEMEX for transportation services,
which is renewable by PEMEX on an annual basis, will be awarded to TFM in the
future. Beginning in 2000 and continuing in 2001, we lost a significant amount
of this business as PEMEX increased the use of trucking and started operating
new pipe lines. Nonetheless, we believe that we are in a position over the long
term to convert more of this traffic and to transport fuel for PEMEX directly
from the U.S. petrochemical markets in Houston and Corpus Christi to refineries
in northern Mexico.

         Beginning in late 2001 and continuing in 2002, our revenues were
adversely affected by (1) a labor strike at Fertinal, one of our main fertilizer
customers and (2) the temporary relocation by Quimir, a major customer, of its
plant from Lazaro Cardenas to Coatzacoalcos, and decreasing phosphoric acid
cargo. In addition, the U.S. economic slowdown has adversely affected exports of
petrochemical products used in the housing industry.

         Intermodal Freight

         In 2002, $56.3 million, or 8.5% 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
2002, our revenues in this product area increased by 32.2% from 2001. The volume
of intermodal traffic in Mexico has been increasing considerably in recent years
and represents an important growth opportunity, with several major international
maritime companies, including APL (American President Line), Mearsk Sealand,
Americana Ships Limited, Dicex, S.A., Navemar Internacional, S.A. de C.V. and
Mediterranean Shipping Company, shipping both imported and exported products by
intermodal freight. The vast majority of the overland portion of this intermodal
traffic in Mexico has been transported by truck. However, we believe that
increasing our piggy-back capabilities, particularly along our core routes, has
enabled us to convert some of this intermodal traffic from truck to rail
transport.

         By means of the intermodal terminals we access, we have the ability to
connect intermodal customers along our rail lines with three of the four primary
ports in Mexico. We expect to contract out hauling services at some terminals to
third parties in order to be able to provide even lower costs to our customers.
Our strategic alliance with Grupo TMM is enabling us to link intermodal
shipments between Grupo TMM and our rail lines. For example, Grupo TMM provides
road freight transportation services to leading manufacturers and other
customers within Mexico and between Mexico and the United States. In addition,
we have entered into arrangements with other intermodal shippers in the United
States (including Schneider National Inc.) which have enabled us to coordinate
"door-to-door" shipments of container traffic for our customers.

         Unlike FNM, which formerly operated our rail lines, we are providing a
more timely and reliable daily dedicated service to our intermodal customers,
which, due to the nature of container cargo transport, demand predictable
timetables and reliable service. We believe that this strategy will enable us to
convert to rail additional customers currently transporting containers by truck
across the United States-Mexico border.

         We believe that we have made progress in this respect. In 2002, we
transported intermodal traffic for new customers such as Costco, Westvaco,
Colgate, Dupont, Procter & Gamble, Editorial Televisa, and Liverpool, a leading
department store chain in Mexico. We also transported glass in intermodal
containers for Grupo Vitro, S.A. de C.V. for export to automobile manufacturers
in the United States.

         Due to the underdeveloped highway system in Mexico and the lack of
adequate security for truck freight, we believe that intermodal transport by
truck is competitive with rail only for distances of 350 kilometers or less. In
addition, in order for the highway systems to improve, government or private
investors would have to devote significant amounts of funds, which would
probably result in increased highway tolls and increased fines for violations of
weight and size restrictions. Because of our decreased labor expenses and the
significantly greater

                                      -30-
<PAGE>

intermodal freight capacity of an average train compared to truck transport, we
expect to be increasingly competitive in intermodal shipping over relatively
short distances as well as longer distances. We do not anticipate that the
highway system in Mexico will improve in the near future.

         We do not believe that the growth of our intermodal revenues or our
ability to convert traffic from trucking to rail transport will be materially
adversely affected by implementation of the NAFTA provisions allowing Mexican
trucking companies to operate on U.S. highways.

         Fuel Freight Service Agreement

         On October 30, 2002 we entered into a freight service agreement with
PEMEX Refinacion, which will expire in 2006. 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>
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>

STRATEGIC PARTNERS

         We have strategic relationships with Grupo TMM and KCS, the founders
and principal shareholders of our parent company, 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 United
States-Mexico border that choose to import products from, or export products to,
markets in the United States.

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its interest in Grupo TFM."

         Grupo TMM

         Grupo TMM is the leading integrated logistics and transportation
company in Mexico. Grupo TMM holds its equity interest in Grupo TFM indirectly
through its subsidiary, TMM Multimodal. TMM Multimodal holds a 38.5% equity
interest in Grupo TFM, representing 51.0% of Grupo TFM's unrestricted voting
shares. 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. Grupo TMM
owns 100.0% of the voting shares of, and has a 96.6% economic interest in, TMM
Multimodal.

         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 PyT 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

                                      -31-
<PAGE>

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.

         See also "Certain Recent Developments.  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 United States. 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 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 United States 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
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 51.0% of our interest in
Mexrail to KCS. The Mexrail Stock sold by TFM will 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 shall retain the right to repurchase all of the shares from KCS
at any time for an amount equal to the purchase price. Such right shall be
unconditional and may 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. Proceeds from the sale were re-invested in TFM.

         Mexrail also owns the northern half of the international rail bridge at
Laredo, while TFM operates the southern half of the bridge at Nuevo Laredo. The
Texas Mexican Railway Company directly links KCSR and TFM's rail lines.
Notwithstanding our sale of 51.0% of Mexrail, we believe that general operations
and dispatching operations of the entire international rail bridge at the United
States-Mexico border at Laredo-Nuevo Laredo will be able to continue at one
quoted rate to provide customers on both sides of the United States-Mexico
border with seamless freight services to and from Mexican markets.

         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

                                      -32-
<PAGE>

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 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 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
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 is being expanded and will serve as a customs exchange and clearinghouse
for inbound rail traffic from the United States, 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. In 2003, the Texas Mexican
Railway Company plans to invest $10.0 million towards rehabilitation of its main
line due to the growth in traffic on such line and in order to provide better
service to its customers.

         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
will continue 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
2003. 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 United
States 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.

                                      -33-
<PAGE>

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 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 a decrease of 8.7% in 2001, and increases of 61.3% and 21.6% in 2000
and 1999, respectively, in our average price of fuel per gallon. In 2002, our
average price of fuel per gallon decreased by 11.2% from 2001. The price of
diesel fuel may 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 United
States, 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 United States that are expected to increase intermodal business
on routes between intermodal facilities in the United States 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 United States 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
United States 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 United States. A significant portion of our contracts are both quoted and
settled in Dollars, and the vast majority of additional freight services are

                                      -34-
<PAGE>

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 54.0% of our total revenues in
2002 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, including through the addition of a SICOTRA-based billing
system. We have installed SICOTRA-related software programs on state-of-the-art
computer hardware at GTE Data Services de Mexico's facility. We have improved
SICOTRA's functionality and are expanding the system into a fully integrated
management information system capable of interfacing with our train dispatch
systems.

         Our improvements to SICOTRA allow us to:

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

         -   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 newly installed 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.

INFORMATION TECHNOLOGY

         In 2002, we continued our customer service and operating initiatives to
support our business strategy, including the implementation of railroad
operating practices in use on major U.S. and Canadian railroads, such as the
computerization of operations management systems and employee training.

                                      -35-
<PAGE>

         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 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, 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

                                      -36-
<PAGE>

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 vote 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. The Mexican
Antitrust Commission is currently reviewing such decision. If the acquisition is
completed, the resulting railroad would operate the largest rail system in
Mexico, and we cannot assure you that this would not have a material adverse
effect on our operations, particularly on the revenues generated by TFM's route
between Mexico City and the port of Veracruz.

         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.

         We believe that the acquisition of Ferrosur by Ferromex would not
adversely affect our rights to use portions of their tracks under our concession
and the relevant law.

         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 allows
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.

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.

         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

                                      -37-
<PAGE>

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 The rates for trackage rights set by the Ministry of Transportation may no
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 Ministry of
Environmental Protection and Natural Resources. The 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 subsequently sold 51.0% of our equity interest in Mexrail to KCS in May
2003. As a result of our ownership interest in 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 agency agreements. There are currently no
material legal or administrative proceedings pending against us with respect to
any environmental matters, and management does not believe that continued
compliance with environmental laws will have a material adverse effect on our
financial condition or results of operations. We cannot predict the effect, if
any, that the adoption of additional or more stringent environmental laws and
regulations would have on our results of operations, cash flows or financial
condition.

                                     -38-
<PAGE>

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 38.5% 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 owns 100.0% of the voting
shares of, and has a 96.6% economic interest in, TMM Multimodal.

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its Interest in Grupo TFM."

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 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
government, together with $18.0 million in cash from our operations.

         The Mexican government directly holds a 20.0% interest in TFM. The
government's interest in TFM consists of 276,797,501 Class III Series A and
Series B Shares with restricted voting rights which represent 20.0% of TFM's
total equity. The Mexican government has the right to sell its equity interest
in TFM by October 31, 2003 in a public offering. If a public offering of TFM
shares does not occur by that date, Grupo TFM will have the obligation 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% equity interest in TFM, indexed
to Mexican inflation. If Grupo TFM does not purchase the Mexican government's
TFM shares, the Mexican government may require Grupo TMM and KCS, or either
Grupo TMM or KCS alone, to purchase the TFM shares at such price and release
Grupo TFM from its obligation.

         See also "Certain Recent Developments. Acquisition of Mexican
Government Interest."

                                      -39-
<PAGE>

         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 government agreed to the transfer of the redundant
La Griega-Mariscala track back to the government. On February 12, 2001, the
Mexican government amended our concession title to reflect the reversion of the
La Griega-Mariscala line to the 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 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 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, 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

                                      -40-
<PAGE>

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, 2002, 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 76.5% 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 100 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, 2002:

<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...................................           1,382                       2,511
Wood ties installed.......................................             117                       1,734
                                                                     -----                       -----
     Total................................................           1,499                       4,245
                                                                     =====                       =====
</TABLE>

         The portion of the Mexico City--Nuevo Laredo core route between Mexico
City and Queretaro (a distance of approximately 260 kilometers) has double
track, which accommodates greater traffic volume and maximum allowable speeds of
approximately 50 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 70.0% 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.

                                      -41-
<PAGE>

         There are 99 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 474 locomotives, of
which 468 are diesel, of which Electro Motive Division ("EMD"), a subsidiary of
General Motors, built 243 and GE built 225. 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. Of our
leased locomotives, we currently use 150. We lease of our owned locomotives to
the Texas Mexican Railway Company. The average age of the locomotives in our
fleet is approximately 12 years, which in 1999 represented 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 474 locomotives in our fleet, approximately 228 are assigned to
the hauling of freight, 50 are used for yard work, 99 locomotives are subleased
to third parties (50 to the Texas Mexican Railway Company, 10 of which are
running on the BNSF line under a horsepower-per-hour interchange agreement, 27
to KCSR and 12 to Ferrosur), 6 locomotives are electric (and out of service) and
73 of our yard and road engines are currently in storage. We use the remaining
18 units for miscellaneous purposes such as maintenance of way trains and
industry switching.

         The following table describes our locomotive fleet and maintenance
contractors, as more fully described under "-Improvements, Maintenance and
Repair," as of December 31, 2002.

<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              105           6          3,000          1990-94          Alstom
          GE           E-60 (Elect.)          6           6          6,000           1984            Alstom
                                            ---
Total owned...............................  324
                                            ===
</TABLE>

<TABLE>
<CAPTION>
LONG-TERM LEASE
<S>                    <C>               <C>              <C>        <C>         <C>                  <C>
        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>

                                      -42-
<PAGE>

         Rail cars owned and leased by us as of December 31, 2002 consisted of
the following:

<TABLE>
<CAPTION>
                                                                            OWNED       LEASED
                                                                            -----       ------
<S>                                                                         <C>         <C>
Box cars.................................................................   1,335         246
Gondolas.................................................................   1,888       1,856
Covered hoppers..........................................................     599       2,190
Flat cars................................................................     579         162
Tri-level carriers.......................................................       0           0
Bi-level carriers........................................................       0       1,279
Spine cars...............................................................       0          48
Tank cars................................................................      84         671
Cabooses.................................................................      51           0
Open top hoppers.........................................................      22         348
                                                                            -----       -----
   Total.................................................................   4,558       6,800
                                                                            =====       =====
</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.

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., 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 United States 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.

                                      -43-
<PAGE>

         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 2001 and 2002, our maintenance and rehabilitation
expenses under this contract amounted to $30.2 million and $35.6 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.

         For a discussion of our capital improvements program, see "Item 3D.
Risk Factors. Our business is capital intensive and we must make significant
additional capital expenditures; failure to make such additional 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.

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. This discussion and analysis is based on, and should be read in
conjunction with the financial statements appearing elsewhere in this report.

ACCOUNTING CONSIDERATIONS

         Our financial statements are prepared in accordance with IAS, which
differ in certain material respects from U.S. GAAP. For further information on
these differences, see note 11 of the financial statements.

         Principle differences between IAS and U.S. GAAP that relate to us are
described in note 11 of our combined and consolidated financial statements. Each
of these differences affects both net income and stockholders' equity. Net
income under U.S. GAAP of TFM was $53.6 million, $91.9 million and $136.6
million for the years ended December 31, 2000, 2001 and 2002, respectively. Net
income under U.S. GAAP for Grupo TFM was $43.5 million, $73.6 and $110.2 million
for the years ended December 31, 2000, 2001 and 2002, 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 IAS, U.S. GAAP and SEC
reporting purposes. We update the results of this analysis on an ongoing basis.
If we were required to change our functional currency to Pesos, our results of
operations for IAS, U.S. GAAP and SEC reporting purposes may be substantially
different.

                                      -44-
<PAGE>

CRITICAL ACCOUNTING POLICIES

         Our financial statements have been prepared in accordance with IAS
which differs in certain respects from U.S. GAAP. Note 11 to our financial
statements provides a description of the principal differences between IAS and
U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP of net income
and stockholders' equity.

         We have identified certain key accounting policies on which our
financial condition and results of operations are dependent. 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 IAS 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 herein.

         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.

         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 expense is a significant component of our
operating expenses. Fuel costs 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. 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.

         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

         On August 15, 2001, the FASB issued Statement No. 143 ("SFAS 143"),
"Accounting for Asset Retirement Obligations." SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs and applies
to all entities. SFAS 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or normal operation of a long-lived asset, except for certain
obligations of lessees. As used in SFAS 143, a legal obligation is an obligation
that a party is required to settle as a result of an existing or enacted

                                      -45-
<PAGE>

law, statute, ordinance, or written or oral contract or by legal construction of
a contract under the doctrine of promissory estoppel. SFAS 143 also requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.

         In April of 2002, the FASB issued Statement No. 145 ("SFAS 145"),
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." As a result, companies will no longer be
allowed to classify gains and losses from extinguishments of debt as
extraordinary items unless they meet the criteria of APB 30. Gains and losses
from extinguishments of debt that have been classified as extraordinary in prior
years that do not meet the criteria of APB 30 shall be reclassified as ordinary
gains and losses on a going forward basis. In addition, SFAS 145 requires that
capital leases that are modified so that the resulting lease agreement is
classified as an operating lease be accounted for under the sale-leaseback
provisions of SFAS 28 or 98, as applicable, instead of SFAS 13. The provisions
of SFAS 145 with regard to SFAS-4 will be effective for fiscal years beginning
after May 15, 2002, and those for SFAS 13 will be effective for transactions
occurring after May 15, 2002.

         In July of 2002, the FASB issued Statement No. 146 ("SFAS 146"),
"Accounting for Costs Associated with Exit or Disposal Activities." This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Tax Force Issue No.
94-3 ("EITF 94-3"), "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred
in a Restructuring)." The principal difference between SFAS 146 and EITF 94-3 is
that SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred rather than at
the date of an entity's commitment to an exit plan. SFAS 146 also revises the
definition of exit costs and establishes that fair value is the objective for
initial measurement of the liability. The provisions of SFAS 146 are effective
for exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statement 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.
This Statement 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. This Statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
Management is still assessing whether this Statement will have a material effect
on our financial position or results of operation.

         In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others as Interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB Interpretation No. 34." This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognitions and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on our financial statements.

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

                                      -46-

<PAGE>

RESULTS OF OPERATIONS

         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 United States and Canada and bad weather conditions affecting crops in
Mexico. Total carloads in 2002 increased by 3.0% compared to 2001. 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, 2001 and December
31, 2002.

<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 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 United States 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 United States and the reduction of the exports
market. In 2002, we experienced a negative impact 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.

                                      -47-
<PAGE>

         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             $ 128,845
   benefits.........................                        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>

         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 advertisement 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.

                                      -48-
<PAGE>

         Car hire-net. 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 costs,
net of car hire income, decreased by 12.2% in the year ended December 31, 2002
from the year ended December 31, 2001. Our car hire expenses decreased primarily
because a favorable resolution was granted to us to recover the 5.0% withholding
tax we paid in 2002. We have hired U.S. railroad cars since 1998 after we began
complying with car hire rules prescribed by the AAR. We expect that net car hire
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
of our lines, new operating capacity, intermodal terminals and ongoing
investments.

         OPERATING INCOME AND OPERATING RATIO

         Our operating income 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.

         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

                                      -49-

<PAGE>

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.

         TFM'S RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
         COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

         Revenues

         Revenues for the year ended December 31, 2001 totaled $667.8 million
compared to $640.6 million for the year ended December 31, 2000, which
represented an increase of 4.2%. The increase in 2001 was mainly attributable to
an increase of approximately 7.5% in revenues derived from haulage of automotive
products, with a corresponding increase of approximately 9.3% in automotive
traffic volumes. Total carloads in 2001 increased by 1.2% compared to 2000.
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, 2000 and December
31, 2001.

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                       -------------------------------------------------------------
                                                    2000                             2001
                                       ----------------------------      ---------------------------
PRODUCT CATEGORY                       CARLOADS(1)      REVENUES         CARLOADS        REVENUES
                                       -----------    -------------      --------      -------------
                                                      (IN MILLIONS)                    (IN MILLIONS)
<S>                                    <C>            <C>                <C>           <C>
Industrial products, metals and
  minerals.........................      203,348        $   175.7        196,119         $  176.9
Agro-industrial products...........      132,102            161.9        136,000            167.4
Automotive products................      138,172            159.5        150,987            171.4
Chemical and petrochemical
products...........................       66,369             89.2         77,159             98.6
Intermodal freight.................      146,293             38.8        162,443             42.6
Other..............................       28,181             15.5              0             10.9
                                         -------        ---------      ---------         --------
   Total...........................      714,465        $   640.6        722,708         $  667.8
                                         =======        =========      =========         ========
</TABLE>

--------------
(1)      Carload and revenue amounts for the category "Other" for 2000 represent
         products not categorized by a specific segment. In the opinion of
         management, the non-allocation of such amounts would not significantly
         change the discussion included herein.

         Industrial products, metals and minerals. Revenues increased by $1.2
million or 0.7% in 2001 over 2000. 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
transportation of home appliances, mainly due to the start of 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 transport
of paper and forest products as a result of an increase in imports from the
United States and Canada due to more competitive prices in this market.

         Growth in our industrial products traffic was offset by a decline of
3.6% in volume primarily due to a decline in the transport of steel products in
2001 caused by a slow-down in domestic production, that reflected declining
international steel prices.

         Agro-industrial products. Revenues increased by $5.5 million or 3.4% in
2001 over 2000. This increase was partially attributable to conversion of
traffic originated at Tamaulipas from truck to rail transport. We have also
enhanced traffic conversion as a result of the development of new railroad
infrastructure at key locations. A scheduled increase in tariffs also
contributed to our revenue growth in 2001.

         Automotive products. Revenues increased by $11.9 million or 7.5% in
2001 over 2000. This increase was a result of increased transportation of
vehicles exported to the United States and Europe from manufacturing plants in
Mexico. This increased export traffic included new product launches in the North
American and European markets, such as the "PT44 Cruiser" produced by
DaimlerChrysler at its Toluca plant beginning in March 2000, the "GMT-800"
introduced by General Motors, Volkswagen's new "Beetle" and Nissan's new
"Sentra," as well as continued growth in exports of automobiles and trucks to
the United States. Another source of revenue growth in 2001 was

                                      -50-
<PAGE>

additional traffic conversion from truck to rail transport, which trend should
continue as we open new intermodal facilities near the plants of our major
automotive customers. Nonetheless, revenue growth in 2001 was slower than that
experienced in 2000 due to decreased demand for exports as a result of the
downturn of the U.S. economy over the past year.

         Chemical and petrochemical products. Revenues increased by $9.4 million
or 10.5% in 2001 over 2000. 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 of products used in the production of plastic during the first half of
the year. 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 $3.8 million or 9.8% in 2001
over 2000. This increase was due to a great extent to continued conversion of
automotive parts traffic 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. We expect this
additional business to offset part of the impact of the U.S. economic downturn.

         Operating Expenses

         Total operating expenses amounted to $570.5 million for the year ended
December 31, 2001, compared to $530.6 million for the year ended December 31,
2000, which represents an increase of 7.5%. 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,
                                   -------------------------------------------------------
                                               2000                          2001
                                   --------------------------      -----------------------
                                                       % OF                          % OF
                                       AMOUNT         REVENUE         AMOUNT       REVENUE
                                     ---------        -------       ---------      -------
                                   (IN THOUSANDS)                 (IN THOUSANDS)
<S>                                <C>                <C>         <C>              <C>
Salaries, wages and employee
   benefits.....................     $ 111,790         16.1%        $ 128,845        17.9%
Purchased services..............       138,453         19.9           147,015        20.4
Fuel............................        67,837          9.8            59,370         8.2
Materials and supplies..........         6,366          0.9             9,349         1.3
Car hire--net...................        46,094          6.6            49,035         6.8
Rents other than car hire.......        44,901          6.5            61,311         8.5
Casualties and insurance........        18,724          2.7            21,560         3.0
Other costs.....................        19,778          2.8            15,670         2.2
Depreciation and amortization...        76,626         11.0            78,345        10.9
                                     ---------         ----         ---------        ----
  Total operating expenses.......... $ 530,569         76.3%        $ 570,500        79.2%
                                     =========         ====         =========        ====
</TABLE>

         Salaries, wages and employee benefits. Salary expenses increased 15.2%
to $128.8 million in 2001 compared to 2000. The increase was attributable to the
annual wage increase payable to our union employees, an increase in other
employee benefits that was effective July 1, 2001, an increase in the annual
average number of our full-time employees by 1.3% to 3,608 in 2001 from 3,561 in
2000 and the appreciation of the Peso against the Dollar.

         Purchased services. Costs of purchased services increased by $8.6
million or 6.2% in 2001 over 2000. 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 cars and the increase in
terminal services.

         Fuel. Our fuel expenses decreased 12.5% in the year ended December 31,
2001 compared to the year ended December 31, 2000 primarily due to an 8.8%
decrease in the average price of diesel fuel per gallon. This decrease was
partially offset by an increase in transport volume.

                                      -51-
<PAGE>

         Materials and supplies. Costs of materials and supplies consumed in the
year ended December 31, 2001 were 46.8% higher than in the year ended December
31, 2000, primarily because we had higher consumption of materials and supplies
related to our track maintenance activities.

         Car hire-net. 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 costs,
net of car hire income, increased by 6.4% in the year ended December 31, 2001
from the year ended December 31, 2000. Our car hire expenses increased primarily
because we supplemented our rolling stock by adding car carriers to serve our
automotive customers. We have hired U.S. railroad cars since 1998 after we began
complying with car hire rules prescribed by the AAR. We expect that net car hire
expenses will increase at a slower rate in 2002 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 increased by
$16.4 million or 36.5% in the year ended December 31, 2001 from the year ended
December 31, 2000 as we increased the number of long-term leases for new
locomotives and cars to provide increased capacity for our network.

         Casualties and insurance. These expenses increased 15.1% in the year
ended December 31, 2001 from the year ended December 31, 2000 due to an increase
in claims of cargo damage and higher premium rates.

         Other costs. Other costs consist primarily of employee expenses such as
the costs of meals, lodging, travel and state tax, 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, 2001 mainly due to a
decrease of $1.0 million in allowance for doubtful accounts, the elimination of
state payroll taxes in 2001 which amounted to $1.0 million in 2000 and one-time
reorganization expenses which amounted to $1.7 million, in 2001. 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, 2001 increased by $1.7 million from the year
ended December 31, 2000 primarily as a result of additional capital improvements
of our lines, new operating capacity, intermodal terminals and ongoing
investments.

         Operating Income and Operating Ratio

         Our operating income decreased to $150.1 million in the year ended
December 31, 2001 from $164.8 million in the year ended December 31, 2000,
representing a decrease of approximately 8.9%, due to the factors described
above. Our operating ratio increased to 79.2% for the year ended December 31,
2001 from 76.3% for the year ended December 31, 2000.

         Other Expenses

         Other expense-net. Our other expenses-net decreased by $57.2 million in
the year ended December 31, 2001 from the year ended December 31, 2000 due to a
one-time profit 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, 2001 was $82.5 million compared to $107.5 million in the year ended December
31, 2000. Our interest expense-net decreased due to a substantial reduction in
debt service as a result of the refinancing of outstanding indebtedness under
our senior secured credit facilities, established on June 23, 1997 (the "senior
secured credit facilities") through our commercial paper program.

         Exchange gain (loss)-net. We recorded a net foreign exchange gain of
$2.8 million in the year ended December 31, 2001 compared with a net foreign
exchange loss of $1.4 million in the year ended December 31, 2000. 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 2001
and 2000, the Dollar depreciated 4.5% and appreciated 1.4%, respectively,
relative to the Peso.

                                      -52-
<PAGE>

         Deferred income tax. Our deferred income tax expense was $2.6 million
for the year ended December 31, 2001 compared to a deferred income tax benefit
of $17.8 million for the year ended December 31, 2000. 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 benefit in the year ended December 31,
2000 is a result of several specific provisions of Mexico's income tax law that
permit us to amortize the costs of acquiring the concession rights and related
assets over a six-year period for income tax purposes and to restate the costs
of these assets on an annual basis to reflect the Mexican inflation rate. Our
taxes are computed based on our results of operations in Pesos and therefore are
affected by the correlation of the Peso-Dollar exchange rate with the Mexican
inflation rate and, consequently, the restatement benefit was lower.

         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 information 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. 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. 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, 2002, 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, 2002 and December 31, 2001. Net cash provided by operating
activities was $125.2 million for 2002 compared to $120.1 million for 2001. The
increase in 2002 resulted mainly from the increase in operating income as well
as changes in non-cash items and changes in both operating assets and
liabilities as disclosed below. We also generated positive cash flows from
operating activities in the years ended December 31, 2001 and 2000 as compared
to prior periods. Net cash provided from operating activities was $120.1 million
for 2001 compared to $176.7 million for 2000. The decrease resulted from
decreases in operating income, changes in both operating assets and liabilities
and changes in non-cash items, each of which is more fully described in the
following table.

                                      -53-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                       ------------------------------------------
                                                                         2000              2001           2002
                                                                       --------          --------       --------
                                                                                      (IN THOUSANDS)
<S>                                                                    <C>            <C>            <C>
Net income for the period...........................................   $ 50,814          $102,154       $(11,350)
  Depreciation and amortization.....................................     76,626            78,345         81,401
  Amortization of discount on 11.75% senior discount debentures.....     45,665(1)         49,408(1)      23,158
  Deferred income tax (benefit) expense.............................    (17,784)            2,550         32,033
  Provision for doubtful accounts...................................      1,865              (247)           345
  Amortization of deferred financing costs..........................     14,307             3,498          5,140
  Minority interest.................................................                                         (84)
  Loss on sale of property, machinery and equipment--net............     23,203             7,585          6,897
  Gain on transfer of concession rights--net........................                      (60,744)
  Changes in current assets and liabilities.........................    (17,995)          (62,497)       (12,290)
                                                                       --------          --------       --------
Net operating cash flows............................................   $176,701          $120,052       $125,250
                                                                       ========          ========       ========
</TABLE>

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

CASH FLOWS FROM INVESTING ACTIVITIES

         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 of our rail lines, addition of 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 price was paid by crediting a receivable of
$20.0 million owed by Grupo TMM to TFM, with the remaining balance of $44.0
being paid to 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.

         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. 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 through operating
leases.

         Net cash used in investing activities in 2000 was $59.8 million. In
2000, we made capital expenditures in an aggregate amount of $66.9 million.
Substantially all of these expenditures were for purchases of machinery and
equipment. Our capital expenditures were partially offset by sales of machinery
and equipment.

CASH FLOWS FROM FINANCING ACTIVITIES

         As of 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

                                      -54-
<PAGE>

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.

         Cash used in financing activities in 2000 amounted to $99.4 million. In
September 2000, we issued $293.0 million principal amount of commercial paper
under our then existing commercial paper program, which is backed by an
irrevocable direct-pay letter of credit issued by Westdeutsche Landesbank
Girozentrale, S.A., New York Branch. The amount of the commercial paper program
was increased to $310.0 million in December 2000.

         The commercial paper was issued at a discount of $5.0 million from its
aggregate principal amount, which represented an average interest rate of
approximately 6.5%. The proceeds from the sale of the commercial paper were used
to prepay the $284.6 million principal amount which was outstanding under our
senior secured credit facilities. The deferred financing costs related to the
senior secured credit facilities were expensed on a one-time basis in 2000.

         To finance the acquisition by Grupo TFM of our shares and our
acquisition of certain railroad assets in connection with the privatization of
our rail lines in June 1997, we issued $150.0 million aggregate principal amount
of the 2007 senior notes and $443.5 million aggregate principal amount at
maturity of the 2009 debentures, both of which are unconditionally guaranteed by
Grupo TFM, and established our senior secured credit facilities with a syndicate
of financial institutions as lenders. The senior secured credit facilities
consisted of a $325.0 million senior term loan and a $150.0 million revolving
credit facility. The obligations under the senior secured credit facilities were
guaranteed by Grupo TFM and secured by substantially all of the assets of TFM
and Grupo TFM. The obligations under the senior secured credit facilities were
repaid in full with the proceeds from issuance of commercial paper under our
then existing commercial paper program, and the liens on our assets were
released at that time.

         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.

                                      -55-
<PAGE>

CONTRACTUAL OBLIGATIONS

         The following table outlines our obligations for payments under our
indebtedness, capital leases and operating leases for the periods indicated
using balances as of December 31, 2002:

                     (Figures in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
          INDEBTEDNESS(1)                         2003          2004           2005       THEREAFTER       TOTAL
          ------------                            ----          ----           ----       ----------       -----
<S>                                            <C>           <C>            <C>           <C>            <C>
Senior discount debentures due 2009.......     $   54,796    $    54,796    $   54,796    $   645,243    $   809,632
Commercial paper program..................          4,332        125,069             0              0        129,401
Term loan facility........................         23,553         40,337        38,835         37,320        140,046
Senior notes due 2007.....................         16,167         16,167        16,167        174,251        222,752
Senior notes due 2012.....................         23,659         23,659        23,659        310,126        381,104
Capital leases............................            298            298           298          1,248          2,142
                                               ----------    -----------    ----------    -----------    -----------
         TOTAL INDEBTEDNESS...............     $  122,805    $   260,326    $  133,755    $ 1,168,188     $1,685,077
                                               ==========    ===========    ==========    ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
          OPERATING LEASES(2)                     2003          2004           2005       THEREAFTER       TOTAL
          ----------------                        ----          ----           ----       ----------       -----
<S>                                            <C>           <C>            <C>           <C>            <C>
Locomotives...............................     $   28,720    $    28,720    $   28,720    $   379,291    $   465,451
Railcars..................................         32,830         18,064        12,504         70,239        133,637
                                               ----------    -----------    ----------    -----------    -----------
         TOTAL OPERATING LEASES...........     $   61,550    $    46,784    $   41,224    $   449,530    $   599,088
                                               ==========    ===========    ==========    ===========    ===========
</TABLE>

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

(2)  These amounts include the minimum lease payments.

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

         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 accrues on the 2009 debentures until June 15, 2002. The 2009 debentures
will mature on June 15, 2009. The discounted offering price of the 2009
debentures represents a fixed

                                      -56-
<PAGE>

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.

         New bank facilities

         On September 19, 2000 we 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, we entered into two new 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 new 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.

                                      -57-
<PAGE>

         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. We used approximately $60.0 million of the proceeds of the new
bank facilities to retire our U.S.$310.0 million commercial paper program which
resulted in an overall reduction of our outstanding level of debt. As of
December 31, 2002, there was $122.0 million outstanding under the commercial
paper program and $128.0 million outstanding under the term loan facility.

         The credit agreements relating to our new 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 our new 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.

         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. As of December 31, 2002, we
were in compliance with these 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.

         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 with a written notification upon
three months notice.

                                      -58-
<PAGE>

         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.

         Sale of mexrail

         In May 2003, we sold 51.0% of our interest in Mexrail and its
wholly-owned subsidiary, the Texas Mexican Railway Company, to KCS for $32.6
million, leaving us with a 49.0% interest in Mexrail. The Mexrail stock sold
will 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 shall retain the right to repurchase all of the
shares from KCS at any time for an amount equal to the purchase price. Such
right shall be unconditional and may 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. Proceeds from the sale were re-invested
in TFM. 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.

         Grupo TFM Call option

         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. As a result of the
acquisition of the call option shares, TFM expects to achieve financial benefits
and reduce the Mexican government's ownership and involvement in its business.
TFM financed the purchase price for the call option shares 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 TFM by
the Mexican government as a result of its transfer of a redundant portion of its
track to the Mexican government, together with cash from TFM's operations.

         Mexican government's put option

         The Mexican government has the right to sell its 20.0% equity interest
in TFM by October 31, 2003 in a public offering. If a public offering of TFM
shares does not occur by that date, Grupo TFM will have the obligation 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% equity interest in TFM, indexed
to Mexican inflation. If Grupo TFM does not purchase the Mexican government's
TFM shares, the Mexican government may require Grupo TMM and KCS, or either
Grupo TMM or KCS alone, to purchase the TFM shares at such price and release
Grupo TFM from its obligation. There is no assurance that Grupo TFM, Grupo TMM
or KCS will have sufficient funds to acquire the Mexican government's interest.
See "Certain Recent Developments. Potential Sale by Grupo TMM of its Interest in
Grupo TFM."

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its Interest in Grupo TFM."

CAPITAL EXPENDITURES

         We made capital expenditures of $89.4 million, representing 12.5% of
our transportation revenues, in 2002. We made capital expenditures of $8.7
million, representing 5.2% of our transportation revenues, for the quarter ended
March 31, 2003. In 2002, our capital expenditures were $35.8 million primarily
for the rehabilitation of our

                                      -59-
<PAGE>

route between Mexico City and Lazaro Cardenas, among other rail lines, $5.3
million for the construction of the Sanchez freight yard, $6.6 million for the
construction of the Monterrey Intermodal Terminal and $8.0 million for the
construction of the Toluca Intermodal Terminal. We expect to make capital
expenditures in each of 2003 and 2004 in an amount up to approximately $66.0
million and $75.0 million, respectively. These capital expenditures include the
expenses we expect to incur for the rehabilitation and improvement of our
secondary rail lines and the construction of new intermodal terminals near the
manufacturing plants of our automotive customers. 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

         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 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.

         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.

         We face significant competition from trucks and other rail carriers as
well as limited competition from the shipping industry in our freight
operations. 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. Under the proposed rules issued by the U.S. Department of
Transportation, it was expected that the U.S. border would have been opened to
Mexican carriers in 2002. However, in January 2003, a coalition of
environmental, consumer and labor groups brought legal action against the U.S.
Department of Transportation alleging that the proposed rules violated federal
environmental laws due to the failure of the U.S. Department of Transportation
to adequately review the impact on U.S. air quality once Mexican carriers were
allowed to transport beyond the 20-mile commercial zones along the U.S.-Mexico
border. In April 2003, the Ninth Circuit of the U.S. Court of Appeals in San
Francisco upheld a prior ruling which required the U.S. Department of
Transportation to perform an Environmental Impact Statement of the Mexican truck
plan and to certify compliance with the Clean Air Act requirements. The matter
has now been remanded to the U.S. Department of Transportation so that it may
prepare the required Environmental Impact Statement and ensure conformity with
the Clean Air Act. Since a key element of our business strategy is to recapture
market share lost to the trucking industry, our inability to successfully
convert traffic from truck to rail transport would materially impair our ability
to achieve our strategic objectives. 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."

                                      -60-
<PAGE>

E. OFF-BALANCE SHEET ARRANGEMENTS

         Not applicable.

F.       TABULAR DISCLOSURE

         Not applicable.

G.       SAFE HARBOR

         Not applicable.

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

                                      -61-
<PAGE>

         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......  Director and Chief Financial Officer of Grupo TMM
</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.

                                      -62-
<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 was elected as a member of the board of directors of Grupo
TFM in 1997 and also serves as a member of the Executive Committee and Executive
Finance Committee of TFM. He has served as Chief Financial Officer of Grupo TMM
since 1994, a director of Grupo TMM since 1992 and as Chief Financial Officer of
TFM and Grupo TFM since May 2003. He has also served in various other positions
with Grupo TMM since 1991. Mr. Marina previously served as 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.

                                      -63-
<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
Jorge Licon...........................    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
Federico Diaz Page....................    Vice President--Planning and Service Design
Ernesto G. Fernandez..................    Chief Mechanical Officer
Manuel V. Zulaica.....................    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 was elected as a member of the board of directors of Grupo
TFM in 1997 and also serves as a member of the Executive Committee and Executive
Finance Committee of TFM. He has served as Chief Financial Officer of Grupo TMM
since 1994, a director of Grupo TMM since 1992 and as Chief Financial Officer of
TFM and Grupo TFM since May 2003. He has also served in various other positions
with Grupo TMM since 1991. Mr. Marina previously served as 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.

JORGE LICON, CHIEF OPERATING OFFICER

         Mr. Licon joined us in November 1997. Prior to assuming his position as
Chief Operating Officer in January 1999, Mr. Licon received training in U.S.
railroad practices at KCSR and TFM. Mr. Licon has 11 years of experience as a
general manager with various Mexican companies, including Grupo Cifra, S.A. de
C.V. and Grupo San Isidro, S.A. de C.V.

                                      -64-
<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 United States.
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
United States.

                                      -65-
<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 United States. 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.

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.

MANUEL V. ZULAICA, CHIEF TRANSPORTATION OFFICER

         Mr. Zulaica joined us in May 2000. Mr. Zulaica has over 11 years of
experience in the railroad industry, having worked in various positions in the
United States, Canada and Mexico for the Canadian Pacific Railroad.

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.

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.

                                      -66-
<PAGE>

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, 2002, the aggregate compensation TFM
and Grupo TFM paid to their directors, alternate directors and executive
officers for services in all capacities was approximately $5.0 million.

         We have established an annual bonus compensation program for our top
management, based on the performance results of TFM and the contribution of each
individual participant. The aggregate compensation disclosed above for 2002
reflects all bonuses paid under the program in 2002.

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, 2001 and 2002, we had accrued
$1.48 million and $0.78 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

         The Audit Committee of TFM and Grupo TFM was appointed by the board of
directors in 1998. The members of the Audit Committee are Javier Segovia
Serrano, a member of TFM's board of directors and President of Grupo TMM, Lydia
Velasco, certified public accountant, and Louis G. Van Horn, KCS' Vice President
and Comptroller. The Chief Executive Officer and the Chief Financial Officer of
TFM attend meetings of the Audit Committee by invitation. The Audit Committee
meets at least once per year. Its responsibilities include the following:

         -   Independent Public Accountants. Review and approve the external
             audit plan and fees, and significant items and developments in
             accounting and financial reporting.

         -   Internal Audit. Review the audits performed and significant issues,
             approve the internal audit plan and review the status of ongoing
             audits.

                                      -67-
<PAGE>

         -   Report of Management. Review management's report of financial
             results.

         In addition, the Audit Committee evaluates the performance and
independence of the independent accountants and the quality of the internal
audit. TFM and Grupo TFM do not have a remuneration committee.

D.       EMPLOYEES

         Effective in July 2001, our labor agreement covering 70.0% of our
workforce was renewed for a two-year term ending in 2003. 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. As of December 31,
2002 we had 3,371 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 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>

                                      -68-
<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 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.
                                      -69-
<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. 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;

         -   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;

                                      -70-
<PAGE>

         -   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.

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its Interest in Grupo TFM."

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.

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.

         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

                                      -71-
<PAGE>

at an annual rate of $1,250,000. The management services agreement is terminable
by either party upon 60 days written notice.

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.

MEXRAIL STOCK PURCHASE AGREEMENT, OMNIBUS AGREEMENT AND SALE OF 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. The
Mexrail stock sold by TFM will 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 shall retain the right to
repurchase all of the shares from KCS at any time for an amount equal to the
purchase price. Such right shall be unconditional and may 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. Proceeds from the
sale were re-invested in TFM.

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.

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, 2002, TFM had a non-interest bearing receivable due from Grupo TFM
of $68.0 million, mainly due to the funding that TFM provided to Grupo TFM to
pay a portion of the purchase price of its TFM shares.

                                      -72-
<PAGE>

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

         On September 25, 2002, the Mexican Magistrates Court of the First
District (the "Federal Court") issued a judgment in favor of TFM on a value
added tax 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 that 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's ruling. The Federal Court's ruling requires the fiscal authorities to
issue the VAT credit certificate only in the name of TFM. On December 6, 2002,
the upper chamber of the Fiscal Court again ruled against TFM. On January 8,
2003, TFM was officially notified of the new judgment of the Fiscal Court and on
January 29, 2003, TFM filed the appropriate appeal. On June 11, 2003, the
Federal Court overruled the Fiscal Court's December 6, 2002 decision. TFM is
waiting to receive the official judgment of the Federal Court and will evaluate
its implications, which could result in new legal proceedings. TFM continues to
believe it will prevail in the final resolution of the matter. In the event TFM
prevails, a third party who can establish that its right have been adversely and
improperly affected by the new ruling may seek to bring a claim, in a different
proceeding, against TFM. However, TFM does not believe that any third party's
rights would be improperly affected and believes that it would prevail in any
such action.

         The face value of the VAT certificate at issue is approximately $206.0
million, and the amount of any recovery will reflect adjustments for inflation
and accruals of interest at statutory rates since 1997, in accordance with the
legal codes applicable since that date.

         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 a
Mexican federal court. Such federal court has suspended the rulings issued by
the Ministry of Transportation until such court makes definitive rulings.

         In September 2001, Ferromex filed a civil lawsuit against us relating
to the payments that we and Ferromex are required to make to each other for
interline services and haulage and trackage rights. We believe that this legal
claim is without merit. On September 25, 2002, the third civil court of Mexico
City rendered its judgment in our favor. Ferromex subsequently appealed the
decision before an appellate court in Mexico. On January 15, 2003, the appellate
court also rendered judgment in our favor. On February 7, 2003, Ferromex
initiated an amparo proceeding before the appropriate federal court in Mexico,
requesting that such court review the appellate court decision. Such proceeding
is currently still in progress.

         In connection with the Ferromex claim, Ferromex temporarily prevented
us from using certain short trackage rights which we have over a portion of its
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. On March 13, 2002, the Ministry of Transportation issued a
ruling confirming

                                      -73-
<PAGE>

our right to use the Celaya-Silao stretch of Ferromex track. Ferromex is
contesting such ruling through appropriate proceedings.

         We are a party to various other legal proceedings arising in the
ordinary course of business, the impact of which would not, either individually
or in the aggregate, in management's opinion, 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.

B.       PLAN OF DISTRIBUTION

         Not applicable.

C.       MARKETS

         The securities are not traded on any stock exchange or other regulated
market. We have applied to list the 2012 senior notes on the Luxembourg Stock
Exchange, but we cannot assure you that the listing will be approved.

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 annual 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

                                      -74-
<PAGE>

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.

         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

                                      -75-
<PAGE>

ordinary course of business; (b) granting of loans to third parties not in the
ordinary course of business; (c) acquisitions not in furtherance of the
corporate purposes of TFM and not in the ordinary course of business, if such
acquisitions have an aggregate value of more than $1,000,000; (d) the
cancellation or redemption of the Class III Shares; and (e) cancellation of the
registration of the shares issued by TFM in the National Registry of Securities
and Intermediaries or any other foreign securities exchange. Except as described
herein, the holders of Class III Shares have no voting rights. Class III Shares
are not entitled to preferential and accumulative dividends.

         All shareholders have a right to receive dividends and any surplus, in
the event of liquidation, in proportion to the number of fully paid shares owned
by such shareholder. With respect to further capital calls made by TFM,
shareholder liability is limited to each shareholder's capital contribution.

         Only shares representative of the variable portion of TFM capital stock
may be redeemed, provided that as a consequence of such redemption, (i) the
number of shareholders of TFM is not less than two or (ii) the amount of capital
stock is not reduced to less than the minimum established by Mexican law. If
neither of these prohibitions apply, the shareholder owning shares
representative of the variable portion of the capital stock may redeem all or
part of its shares at the lesser of (a) 95.0% of the value of such shares at the
Mexican stock exchange market or (b) the value of the shares pursuant to the
last balance sheet approved by the shareholders. The reimbursement of the
redeemed shares will become due on the day following the date of the next
general ordinary shareholders meeting which approves the financial information
of the fiscal year in which the redemption must take effect, pursuant to the
procedure authorized by such shareholders meeting.

         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.

                                      -76-
<PAGE>

         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.

         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.

                                      -77-

<PAGE>

         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 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.

                                      -78-

<PAGE>

         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.

         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.

                                      -79-

<PAGE>

C.       MATERIAL CONTRACTS

         See "Item 5B. Liquidity and Capital Resources. Contractual Obligations"
for (i) a description of the indentures governing our debt securities and the
credit agreements governing our commercial paper program and term loan facility
and (ii) a description of the stock purchase agreement whereby we sold Mexrail
on April 15, 2003.

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

         -    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 the
Mexico's income tax law and regulations applicable on the date of this annual
report. All of these things are 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 United States;

         -    a corporation, partnership, or other entity created or organized
              in or under the laws of the United States, 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 United States 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, a natural person is a resident of
Mexico if he has established his home in Mexico, unless he has resided in
another country for more than 183 days, whether consecutive or not, during a
calendar year, and can demonstrate that he has become a resident of that country
for tax purposes. 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 or the effective location of its management in
Mexico. An individual of Mexican nationality is presumed to be a resident of
Mexico unless such person can demonstrate otherwise. 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 an individual or corporation that does not satisfy the
requirements to be considered a resident of Mexico for Mexican federal tax
purposes.

                                      -80-

<PAGE>

         The description of the U.S. federal income and Mexican tax laws set
forth below is based on the laws in force as of the date of this annual report
and is subject to any changes in applicable U.S. or Mexican tax laws. The
governments of the United States and Mexico ratified an income tax treaty and a
protocol (together the "Tax Treaty") which came into effect on January 1, 1994.
The United States and Mexico have also entered into an agreement that covers the
exchange of information with respect to tax matters.

         Each prospective holder of the securities should consult his or her 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 the securities.

         PAYMENTS OF INTEREST

         Under Mexico's income tax law, payments of interest with respect to
each of the securities to non-resident U.S. holders (which is deemed to include
any amounts paid by TFM in excess of the original issue price) will be subject
to Mexican withholding tax at a rate of 4.9%, if, as expected, 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 in force a
              treaty for the avoidance of double taxation;

         -    we duly comply with the information requirements established in
              the general rules issued by the Ministry of Finance and Public
              Credit for those purposes; 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.

         If any of the above-mentioned requirements is not met, the Mexican
withholding tax will be 10.0% and in certain cases 34.0%.

         The Ministry of Finance and Public Credit has not yet issued any
specific rules establishing the information requirements for the application of
the 4.9% withholding tax rate. However, the Ministry of Finance and Public
Credit has taken the position that these requirements are satisfied by meeting
the requirements of Rule 3.25.15, which is in force until March 31, 2004. Rule
3.25.15 currently requires, among other things, that TFM: (1) timely files with
the Ministry of Finance and Public Credit evidence of the registration of the
securities with the Special Section of the National Registry of Securities
maintained by Mexico's National Banking and Securities Commission; (2) timely
files certain information related to the issuance of the securities; (3) timely
files confirmation that neither (x) shareholders of TFM that own, directly or
indirectly, individually or collectively with other related parties, more than
10.0% of the voting stock of the equity of TFM nor (y) entities in which 20.0%
or more of whose stock is owned directly or indirectly, individually or
collectively, by parties related to TFM, directly or indirectly, individually or
collectively, the effective beneficiaries of more than 5.0% of the aggregate
amount of each interest payment, and (4) maintains records evidencing compliance
with (3) above. We expect that this rule will be extended or that a
substantially similar successor of such rule will be published; however we can
not assure you that this will happen. In any case, we expect to satisfy the
information requirements, and accordingly, expect that the 4.9% withholding tax
rate will apply.

                                      -81-

<PAGE>

         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% in the event that:

         (i)      the securities are considered 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 provided that:

         -    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 the securities by TFM is not subject to Mexican withholding tax.

         ADDITIONAL AMOUNTS

         Pursuant to the applicable indenture, but subject to certain exceptions
and limitations, all payments on the securities will be made free and clear of
any withholding taxes imposed by Mexico. We will furnish to the Trustee 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 the 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
the 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.

                                      -82-

<PAGE>

         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 in respect to a security, if any, on account of Mexican withholding
taxes, 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 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 debentures. 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 interest paid 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 situations.

         ORIGINAL ISSUE DISCOUNT

         Under the Internal Revenue Code, if the sum of all the payments a
holder receives from a debenture exceeds the debenture's 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 U.S.
holders will generally have to include original issue discount in their income
as ordinary income. Original issue discount is not included in income as a lump
sum, but as it accrues, which is calculated 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 original issue discount
interest income before the corresponding cash payment is actually made.
Regardless of when the U.S. holder actually receives the cash representing the
original issue discount income, such holder must include the amount of cash in
such holder's income as it has been calculated to accrue assuming a constant
yield to maturity.

         Since the debentures were issued with original issue discount, U.S.
holders will be required to include original issue discount in their gross
income as described below.

         A debenture's stated redemption price at maturity will equal the sum of
all payments thereon, minus any part of the payments that are "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 will not be paid on the debentures prior to the year
2002, it 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 will have
substantial original issue discount.

         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:

                                      -83-

<PAGE>

         Step 1)  Determine the number of days between interest accrual periods
                  (365 for annual; 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)  To calculate how much original issue discount will accrue
                  during a period, multiply the adjusted issue price of the
                  debenture (as described below) by the debenture's yield to
                  maturity (see Step 2 above).

         Step 4)  To calculate the "daily portion" of original issue
                  discount, 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 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 notes purchased at a
premium or bearing market discount in the hands of the 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 security for less than its principal
amount, 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.

                                      -84-
<PAGE>

         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 2007 senior note, 2009 debenture or 2012
senior note 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 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)

         AMORTIZABLE BOND PREMIUM

         If a U.S. holder purchases a security for more than the amount payable
at maturity (or on an earlier call 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 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 United States 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 United States or made by a paying agent, broker or
other intermediary in the United States were subject to a backup withholding tax
at a rate of 30.0% in 2002 and will be subject to the same rate in 2003 (and at
a lower rate in subsequent years) if the U.S. holder fails to furnish such
holder's taxpayer

                                      -85-
<PAGE>

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.

B.       DIVIDEND AND PAYING AGENTS

         Not applicable.

F.       STATEMENT BY EXPERTS

         Not applicable.

H.       DOCUMENTS ON DISPLAY

I.       SUBSIDIARY INFORMATION

         Not applicable.

         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.

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 of the financial statements.

                                      -86-
<PAGE>

         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, 2002:

<TABLE>
<CAPTION>
                                                 FIXED RATE         VARIABLE RATE
MATURITY                                           DEBT(1)             DEBT(2)
-----------------------------------------        ----------         -------------
                                                    (IN THOUSANDS OF DOLLARS)
<S>                                              <C>                 <C>
2003.....................................        $         0         $    18,286
2004.....................................                  0             158,572
2005.....................................                  0              36,571
2006 and thereafter......................        $   773,500              36,571
                                                 -----------         -----------
  Total..................................        $   773,500         $   250,000
                                                 ===========         ===========
  Fair Value.............................        $   747,284         $   250,000
                                                 ===========         ===========
</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, 2002 was approximately 3.61% for the
         commercial paper program and 4.67% for the term loan facility.

INTEREST RATE AGREEMENTS

         We have entered into some types of interest rate contracts to manage
our interest rate risk. We used interest rate swaps to reduce the potential
impact of increases in our borrowings under our senior secured credit
facilities. 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 United States. 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, 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 monetary assets and liabilities denominated in
Pesos of Ps. 1,725.0 million and Ps. 334.0 million, respectively. At December
31, 2000, we had Peso-denominated monetary assets and liabilities of Ps. 478.7
million and Ps. 219.4 million, respectively. At December 31, 2002, 2001 and
2000, the applicable Peso-Dollar exchange rate was Ps. 10.45, Ps. 9.18 and Ps.
9.61 per U.S. Dollar, respectively.

         As of December 31, 2002, we had one Peso call option outstanding in the
notional amount of $1.7 million, based on an average exchange rate of
approximately Ps. 11.0 per Dollar. This option expired on May 29, 2003.

         Additionally, as of December 31, 2002, we had one purchase forward
contract and one sale forward contract outstanding in the aggregate notional
amount of $10.0 million. The purchase forward contract was based on an exchange
rate of Ps. 9.77 per Dollar and the sale forward contract was based on an
exchange rate of Ps. 10.56 per Dollar. These forward contracts expired on
February 13, 2003.

                                      -87-
<PAGE>

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. In 2002, we entered into swap fuel
contracts covering approximately 10,000,000 gallons at the average price of
$0.68 per gallon. These contracts covered almost 16.0% of our estimated fuel
purchase. 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 only recorded a benefit of $1.0
million at December 31, 2002.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

                                    PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

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

         In the second quarter of 2002, we completed a solicitation of consents
of holders of our 2007 senior notes and our 2009 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 our 2007 senior notes and 2009 debentures were
issued. Such changes included (i) a one-time waiver of the limitation on
restricted payments covenants in the respective indentures governing our 2007
senior notes and our 2009 debentures to allow us to purchase the equity interest
of the Mexican government in our parent company, Grupo TFM; (ii) elimination of
the "basket" that allowed TFM to incur $475.0 million of indebtedness without
regard to the interest coverage ratio and insertion in its place of a $75.0
million "basket" that TFM may use to incur secured indebtedness for specified
purposes; and (iii) setting of the accrued "basket" available to TFM for making
restricted payments at zero, with retroactive effect to April 1, 2002.

         We obtained the requisite consents to allow us to purchase the equity
interest of the Mexican government in our parent company, Grupo TFM, 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.

         In the consent solicitation, we received consents from holders
representing a majority of the aggregate principal amount outstanding of each of
the 2007 senior notes and the 2009 debentures, as required to amend each
applicable indenture. Supplemental indentures setting forth the proposed
amendment have been executed with respect to each indenture and the cash fee was
paid to consenting holders on June 13, 2002.

         Holders delivering their consents in the consent solicitation were
offered a cash fee of $30.00 for each $1,000 principal amount of existing notes
in respect of which they delivered a valid and unrevoked consent. We obtained
this financing through the issuance of the 2012 senior notes.

E.       USE OF PROCEEDS

         Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

         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 such term is defined in Rules 13a-15(c)
and 15d-15(c) under the Exchange Act) within 90 days prior to the date of this
annual report. Based on that evaluation, such officers concluded that our
disclosure controls and procedures are effective to ensure that

                                      -88-
<PAGE>

information required to be disclosed in this annual report is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.

         There were no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of the evaluation. No significant deficiencies and material weaknesses were
identified that required corrective actions.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

         Not applicable.

ITEM 16B. CODE OF ETHICS

         Not applicable.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Not applicable.

                                    PART III

ITEM 17. FINANCIAL STATEMENTS

         Not applicable.

ITEM 18. FINANCIAL STATEMENTS

         See pages F-1 through F-52.

                                      -89-
<PAGE>

ITEM 19. EXHIBITS

Documents filed as exhibits to this annual 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.

   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.

   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).

                                      -90-

<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.

                                      -91-
<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.

   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.

   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).

                                      -92-
<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 21, 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. 333-99075).

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

*  Filed herewith.

                                      -93-
<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:   Finance Director

Date: June 30, 2003

-------------------------
*Print the name and title of the signing officer under this signature.

<PAGE>

                                  CERTIFICATION

         I, Mario Mohar Ponce, certify that:

         1.       I have reviewed this annual report on Form 20-F of TFM, S.A.
de C.V. and Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.

         2.       Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report.

         3.       Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

         4.       The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                  a)       designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.

         5.       The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent function):

                  a)       all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in internal
controls; and

                  b)       any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.

         6.       The registrant's other certifying officers and I have
indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: June 30, 2003

                                        By:    /s/ Mario Mohar Ponce
                                               ---------------------------------
                                               Mario Mohar Ponce
                                               Chief Executive Officer

<PAGE>

                                  CERTIFICATION

         I, Jacinto Marina Cortes, certify that:

         1.       I have reviewed this annual report on Form 20-F of TFM, S.A.
de C.V. and Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.

         2.       Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report.

         3.       Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

         4.       The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                  a)       designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.

         5.       The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent function):

                  a)       all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in internal
controls; and

                  b)       any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.

         6.       The registrant's other certifying officers and I have
indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: June 30, 2003

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

<PAGE>

                                      INDEX

                                TFM, S.A. DE C.V.

             AUDITED, COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

<TABLE>
<CAPTION>
CONTENTS                                                                                             PAGE
--------                                                                                             ----
<S>                                                                                                  <C>
Report of Independent Accountants................................................................    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-7
</TABLE>

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

             AUDITED, COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

<TABLE>
<CAPTION>
CONTENTS                                                                                             PAGE
--------                                                                                             ----
<S>                                                                                                  <C>
Report of Independent Accountants................................................................    F-27
Combined and Consolidated Balance Sheets.........................................................    F-28
Combined and Consolidated Statements of Income...................................................    F-29
Combined and Consolidated Statements of Changes in Stockholders' Equity..........................    F-30
Combined and Consolidated Statements of Cash Flows...............................................    F-31
Notes to the Combined and Consolidated Financial Statements......................................    F-32
</TABLE>

<PAGE>

                                TFM, S.A. DE C.V.

                        REPORT OF INDEPENDENT ACCOUNTANTS

Mexico City, February 28, 2003

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, 2002 and 2001,
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, 2002, 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 Auditing Standards Generally Accepted in the United States of
America. 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
Accounting 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, 2002 and 2001, and the combined and consolidated results of their
operations, the changes in stockholders' equity and their cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
International Accounting Standards.

         International Accounting Standards differ in certain material respects
from Accounting Principles Generally Accepted in the United States of America.
The application of the latter would have affected the determination of the
combined and consolidated net income for each of the three years in the period
ended December 31, 2002, and the determination of combined and consolidated
stockholders' equity and combined and consolidated financial position as of
December 31, 2002 and 2001, to the extent summarized in Note 11 to the 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,
                                                                                                       ------------
                                                                                                   2001            2002
                                                                                                   ----            ----
<S>                                                                                            <C>             <C>
ASSETS
Current assets:
     Cash and cash equivalents .............................................................   $     40,578    $     30,221
     Accounts receivable net of allowance for doubtful accounts of $3,568 in 2001 and $3,913
         in 2002 ...........................................................................        103,562          90,596
     Amounts due from related parties (Note 7) .............................................         43,548           5,316
     Other accounts receivable -  Net ......................................................         69,713         106,628
     Materials and supplies ................................................................         23,329          20,261
     Other current assets ..................................................................         10,030          12,200
                                                                                               ------------    ------------
         Total current assets ..............................................................        290,760         265,222

Due from Mexican Government (Note 3) .......................................................         81,892
Long-term account receivable ...............................................................                          1,388
Concession rights and related assets - Net (Note 3) ........................................      1,205,887       1,164,301
Property, machinery and equipment - Net (Note 4) ...........................................        568,755         609,367
Long-term receivable from Grupo TFM (Note 7) ...............................................        661,275         661,478
Investment held for operating purposes (Note 2i.) ..........................................          6,166           7,435
Deferred financing costs ...................................................................         11,647          34,281
Other assets ...............................................................................            449             361
Deferred income taxes (Note 9) .............................................................        129,211          97,178
                                                                                               ------------    ------------
         Total assets ......................................................................   $  2,956,042    $  2,841,011
                                                                                               ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term liabilities:
     Commercial paper (Note 5) .............................................................   $    264,638
     Current portion of long-term debt (Note 5) ............................................                   $     18,286
     Current portion of capital lease obligations (Note 10) ................................            298             267
     Amounts owed to related parties (Note 7) ..............................................         10,767           9,175
     Accounts payable and accrued expenses .................................................        105,750         119,564
                                                                                               ------------    ------------
         Total short-term liabilities ......................................................        381,453         147,292
                                                                                               ------------    ------------
Long-term portion of capital lease obligations (Note 10) ...................................          2,137           1,875
Long-term debt (Note 5) ....................................................................        570,938       1,002,677
Other long-term liabilities ................................................................         21,551          40,735
                                                                                               ------------    ------------
         Total long-term liabilities .......................................................        594,626       1,045,287
                                                                                               ------------    ------------
         Total liabilities .................................................................        976,079       1,192,579
                                                                                               ------------    ------------
Minority interest (Note 2o.) ...............................................................                            (84)
                                                                                                               ------------
Commitments and contingencies (Note 10)

Subsequent events (Note 12)

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 ....................................................         22,390         (41,952)
Treasury shares ............................................................................                       (256,130)
Retained earnings ..........................................................................        198,691         187,716
                                                                                               ------------    ------------
         Total stockholders' equity ........................................................      1,979,963       1,648,516
                                                                                               ------------    ------------
         Total liabilities and stockholders' equity ........................................   $  2,956,042    $  2,841,011
                                                                                               ============    ============
</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,
                                                                       ----------------------
                                                                  2000          2001          2002
                                                                  ----          ----          ----
<S>                                                            <C>           <C>           <C>
Transportation revenues ....................................   $  695,425    $  720,627    $  712,140
                                                               ----------    ----------    ----------

Operating expenses:
     Salaries, wages and employee benefits .................      111,790       128,845       124,413
     Purchased services ....................................      138,453       147,015       163,835
     Fuel, material and supplies ...........................       74,203        68,717        58,594
     Other costs ...........................................      129,497       147,578       129,428
     Depreciation and amortization .........................       76,626        78,345        81,401
                                                               ----------    ----------    ----------

          Total operating expenses .........................      530,569       570,500       557,671
                                                               ----------    ----------    ----------

Operating income ...........................................      164,856       150,127       154,469
                                                               ----------    ----------    ----------

Other (expenses) income - Net ..............................      (22,889)       34,257       (19,614)
                                                               ----------    ----------    ----------

Interest income ............................................        2,234         4,510         4,974
Interest expense ...........................................     (109,736)      (87,009)     (101,722)
Exchange (loss) gain - Net .................................       (1,435)        2,819       (17,508)
                                                               ----------    ----------    ----------

Net comprehensive financing cost ...........................     (108,937)      (79,680)     (114,256)
                                                               ----------    ----------    ----------

Income before provision for deferred income taxes ..........       33,030       104,704        20,599

Deferred income tax benefit (expense) (Note 9) .............       17,784        (2,550)      (32,033)
                                                               ----------    ----------    ----------

Income (loss) before minority interest .....................       50,814       102,154       (11,434)

Minority interest ..........................................                                       84
                                                               ----------    ----------    ----------

Net income (loss) for the year .............................   $   50,814    $  102,154    ($  11,350)
                                                               ==========    ==========    ==========

Net income (loss) for the year per share (Note 2p.) ........   $   0.0367    $   0.0738    ($  0.0082)
                                                               ==========    ==========    ==========
</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, 2000, 2001 AND 2002
                                 (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, 1999 ................   $ 1,758,882    $    22,390                    $    45,723    $ 1,826,995
Net income for the year .....................                                                      50,814         50,814
                                                -----------    -----------                    -----------    -----------
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
                                                ===========    ===========    ============    ===========    ===========
</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,
                                                                                             -----------------------
                                                                                        2000          2001          2002
                                                                                        ----          ----          ----
<S>                                                                                  <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year ...................................................   $   50,814    $  102,154    ($  11,350)
                                                                                     ----------    ----------    ----------
Adjustments to reconcile net income (loss) to net cash provided
     by operating activities:
     Depreciation and amortization ...............................................       76,626        78,345        81,401
     Amortization of discount on senior secured debentures and
         commercial paper ........................................................       45,665        49,408        23,158
     Deferred income tax (benefit) expense .......................................      (17,784)        2,550        32,033
     Provision for doubtful accounts .............................................        1,865          (247)          345
     Amortization of deferred financing costs ....................................       14,307         3,498         5,140
     Minority interest ...........................................................                                      (84)
     Loss on sale of property, machinery and equipment - Net .....................       23,203         7,585         6,897
     Gain on transfer of concession rights - Net .................................                    (60,744)
     Changes in assets and liabilities:
          Accounts receivable ....................................................      (34,277)      (17,450)       12,621
          Long-term receivable from Grupo TFM ....................................           11           (38)         (203)
          Other accounts receivable ..............................................       (4,132)      (16,266)      (36,915)
          Materials and supplies .................................................       (3,030)        1,269         3,068
          Other current assets ...................................................         (821)       (1,084)       (2,170)
          Amounts due to related parties .........................................           15       (42,109)        8,311
          Accounts payable and accrued expenses ..................................       21,936        11,909        13,814
          Other non-current assets and long-term liabilities .....................        2,303         1,272       (10,816)
                                                                                     ----------    ----------    ----------
              Total adjustments ..................................................      125,887        17,898       136,600
                                                                                     ----------    ----------    ----------
Net cash provided by operating activities ........................................      176,701       120,052       125,250
                                                                                     ----------    ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Mexrail, Inc. ......................................................                                  (44,000)
Sale of property, machinery and equipment ........................................        7,153         2,012           642
Acquisition of property, machinery and equipment .................................      (66,918)      (85,245)      (89,355)
Acquisition of treasury shares ...................................................                                 (162,575)
                                                                                     ----------    ----------    ----------
Net cash used in investing activities ............................................      (59,765)      (83,233)     (295,288)
                                                                                     ----------    ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under commercial paper ..................................................                    (25,156)     (340,000)
Repayments for debt ..............................................................      (15,074)
Proceeds from commercial paper ...................................................      280,662                     196,738
Proceeds from senior notes .......................................................                                  175,241
Proceeds from term loan facility .................................................                                  128,000
Principal payment of senior secured credit facility ..............................     (269,769)
Proceeds from revolving credit facility ..........................................       15,102
Principal payments under capital lease obligations ...............................      (10,248)       (4,227)         (298)
Payments under revolving credit facility .........................................     (100,100)
                                                                                     ----------    ----------    ----------
Net cash (used in) provided by financing activities ..............................      (99,427)      (29,383)      159,681
                                                                                     ----------    ----------    ----------
Increase (decrease) in cash and cash equivalents .................................       17,509         7,436       (10,357)
Cash and cash equivalents:
     Beginning of the year .......................................................       15,633        33,142        40,578
                                                                                     ----------    ----------    ----------
     End of the year .............................................................   $   33,142    $   40,578    $   30,221
                                                                                     ==========    ==========    ==========

SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest ...........................................   $   53,564    $   28,779    $   58,525
                                                                                     ==========    ==========    ==========

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
                                                                                                   ==========
</TABLE>

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

                                      F-6
<PAGE>

                                TFM, S.A. DE C.V.

           NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
          (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 2,641 (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 70% 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. ("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 price was paid by
crediting an account receivable from related parties amounting to $20,000, and
the remaining balance of $44,000, was paid in cash. As a result, Mexrail, 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. ("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 acquired through the privatization
previously transferred by TFM. Arrendadora TFM is a subsidiary of TFM.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         TFM and subsidiaries prepare their financial statements in accordance
with International Accounting Standards ("IAS") 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 11. The most
significant accounting policies are described below.

                                      F-7
<PAGE>

         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, 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 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.

         d. 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 or market.

         e. 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.

         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.

                  iv.      Capital lease obligations assumed.

         f. 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).

                                      F-8
<PAGE>

         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).

         g. FOREIGN CURRENCY POSITION

         At December 31, 2002 TFM had monetary assets and liabilities
denominated in Mexican pesos of Ps1,292 million and Ps414 million (Ps1,725
million and Ps334 million, at December 31, 2001), respectively. At December 31,
2001 and 2002 the exchange rate was Ps9.18 and Ps10.45 per US dollar,
respectively. At February 28, 2003, date of issuance of these combined and
consolidated financial statements, the exchange rate was Ps10.86 per US dollar.

         h. DERIVATIVE FINANCIAL INSTRUMENTS

         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.

         i. INVESTMENT HELD FOR OPERATING PURPOSES

         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, 2000,
2001 and 2002, the equity in the loss (income) of the Mexico City rail terminal
amounted to $19, $915 and ($1,269), respectively and is included in other
(expenses) income - net in the statements of income.

         j. DEFERRED FINANCING COSTS

         Includes fees and other related expenses paid by the Company to obtain
long-term debt (see Note 5). These deferred financing costs are amortized by the
effective interest method during the outstanding period of such long-term debt.

         k. DEFERRED INCOME TAX

         Deferred income tax is determined following interperiod allocation
procedures under the liability method.

         Under this method the Company is required to make provision for
deferred income taxes on the tax indexation of certain-non-current assets and,
in relation to an acquisition, on the difference between the acquisition cost of
the net assets acquired and their tax base.

         l. 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, 2001 and 2002, the
Company had a provision of $1,478 and $778, respectively. Other compensations
based on length of service to which employees may be entitled in the event of
dismissal or death, in accordance with the Mexican Federal Law, are charged to
the statement of income in the year in which they become payable.

         m. REVENUE RECOGNITION

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

         n. INTANGIBLE AND LONG-LIVED ASSETS

         The carrying value of intangible assets and long-lived assets are
periodically reviewed by the Company and impairments are recognized when the
expected future operating cash flows, undiscounted and without interest charges,
derived from such intangible assets and long-lived assets are less than their
carrying value.

                                      F-9
<PAGE>

         o. MINORITY INTEREST

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

         p. NET INCOME PER SHARE

         Net income 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, 2000, 2001 and 2002 was
1,383,987,505.

         q. CONCENTRATION OF RISK

         Over 23% 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 an allowance for doubtful
accounts.

         r. USE OF ESTIMATES

         The preparation of the 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.

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.

         Concession rights and related assets are summarized as follows.

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                             ------------            ESTIMATED USEFUL
                                                         2001            2002          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 .........................       (215,795)       (257,381)
                                                     ------------    ------------
Concession rights and related assets - Net .......   $  1,205,887    $  1,164,301
                                                     ============    ============
</TABLE>

         Amortization of concession rights was $39.4 million in 2000, $38.9
million in 2001 and $38.6 million in 2002.

         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

                                      F-10
<PAGE>

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) income - net in the statement of income.

         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, Edo. Mex. 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 by FNM under capital lease arrangements (see
Note 10). Legal title to the purchased assets was transferred TFM at that time:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                           ------------        ESTIMATED USEFUL
                                                        2001          2002      LIVES (YEARS)
                                                        ----          ----     ----------------
<S>                                                  <C>           <C>         <C>
Locomotives ......................................   $  176,647    $  176,456         14
Freight cars .....................................      105,921        98,622       12-16
Machinery of workshop ............................       17,111        17,515          8
Machinery of road ................................       28,233        30,906         14
Furniture and equipment ..........................      268,198       318,677        1-15
Buildings ........................................        6,697         7,168         20
Other ............................................       67,081        77,192         8
                                                     ----------    ----------
                                                        669,888       726,536
Less accumulated depreciation and amortization ...     (159,430)     (199,246)
                                                     ----------    ----------
                                                        510,458       527,290
Land .............................................       37,538        37,607
Construction in progress .........................       20,759        44,470
                                                     ----------    ----------
                                                     $  568,755    $  609,367
                                                     ==========    ==========
</TABLE>

         Depreciation of property, machinery and equipment was $37.2 million in
2000, $39.4 million in 2001 and $42.8 million in 2002.

                                      F-11
<PAGE>

NOTE 5 - FINANCING:

         Financing is summarized as follows:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                    ------------
                                                                  2001         2002
                                                                  ----         ----
<S>                                                            <C>          <C>
SHORT-TERM DEBT:
Commercial paper (1) .......................................   $  265,000
Less- Discount on commercial paper .........................         (362)
                                                               ----------   ----------
                                                               $  264,638   $        -
                                                               ==========   ==========
CURRENT PORTION OF LONG-TERM DEBT:
Term loan facility (6) .....................................                $   18,286
                                                                            ==========
LONG-TERM DEBT:
Senior notes due 2007 (2) ..................................   $  150,000   $  150,000
Senior discount debentures (3) .............................      443,501      443,501
Senior notes due 2012 (4) ..................................                   180,000
Commercial paper (5) .......................................                   122,000
Term loan facility (6) .....................................                   109,714
                                                               ----------   ----------
                                                               $  593,501   $1,005,215
Less- discount on senior discount debentures, senior
    notes and commercial paper .............................      (22,563)      (2,538)
                                                               ----------   ----------
                                                               $  570,938   $1,002,677
                                                               ==========   ==========
</TABLE>

         (1)      COMMERCIAL PAPER

         On September 17, 2002, the total amount of the 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 Company repaid the remaining $60 million of
indebtedness outstanding under the former commercial program. See (5) below.

         (2)      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, 2000, 2001 and 2002.

         (3)      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 will be
payable thereon prior to June 15, 2002. The SDD will mature on June 15, 2009.
The price of the SDD represents a yield to maturity of 11.75%, fixed rate,
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 the
following redemption prices (expressed in percentages of principal amount at
maturity), plus accrued and unpaid interest, if any. The unamortized discount at
December 31, 2001 amounted to $22,563.

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

                                      F-12
<PAGE>

         Interest expense related with the SDD amounted $42,608, $47,763 and
$53,406 during 2000, 2001 and 2002, respectively.

         (4)      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 for 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 an 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, at any time in the event of certain changes in Mexican tax
law. 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 unamortized discount
at December 31, 2002 amounted to $2,376.

         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, for the year ended December 31, 2002.

         According to the refinancing of the commercial paper program due in
September, 2002, the Company entered into two new bank facilities as follows:

         (5)       COMMERCIAL PAPER

         The commercial paper program consists of a two-year facility in the
amount of $122,000, which is supported by a letter of credit issued under the
bank facility. The 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 commercial paper facility rank at least pari passu with the
other senior unsecured indebtedness. The unamortized discount at December 31,
2002 amounted to $162.

         (6)      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.

         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 asset sales, with which the Company and subsidiaries were in
compliance at December 31, 2002.

                                      F-13
<PAGE>

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. TFM's fuel hedging program covered
approximately 25% of estimated fuel purchases. 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.

         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, 2001, the Company had eight Mexican peso call
options outstanding in the notional amount of $10 million each one, based on the
exchange rate of Ps9.973 per dollar. These options expired during 2002.

         As of December 31, 2002, the Company had one Mexican peso option
outstanding in the notional amount of $1.7 million based on the average exchange
rate of Ps11.0 per dollar. These options will expire 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, 2002.

         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, 2001 was $138,000 and
$385,845 and at December 31, 2002 was $140,625 and $427,334, respectively. The
related fair value of the senior notes due 2012 at December 31, 2002, was
$179,325. The carrying amount of commercial paper and term loan facility
approximates fair value due to their variable rates.

NOTE 7 - BALANCES AND TRANSACTIONS WITH SHAREHOLDERS AND RELATED PARTIES:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                    ------------
                                                                  2001       2002
                                                                  ----       ----
<S>                                                            <C>         <C>
ACCOUNTS RECEIVABLE:
Grupo TFM ..................................................   $  40,820
Other Grupo TMM subsidiaries ...............................       2,728   $   5,316
                                                               ---------   ---------
                                                               $  43,548   $   5,316
                                                               =========   =========
ACCOUNTS PAYABLE:
KCS ........................................................   $   3,284   $   1,222
Terminal Ferroviaria del Valle de Mexico, S.A. de C.V. .....       2,308       3,479
Other Grupo TMM subsidiaries ...............................       5,175       4,474
                                                               ---------   ---------
                                                               $  10,767   $   9,175
                                                               =========   =========
</TABLE>

                                      F-14
<PAGE>

         The most important transactions with related parties are summarized as
follows:

<TABLE>
<CAPTION>
                                           DECEMBER 31,
                                           ------------
                                 2000          2001          2002
                                 ----          ----          ----
<S>                           <C>           <C>           <C>
Transportation revenues ...    $   3,410     $   3,434     $   7,645
                              ==========    ==========    ==========
Management services .......   ($   2,500)   ($   2,500)   ($   2,500)
                              ==========    ==========    ==========
Other expenses ............   ($   5,262)   ($   9,501)   ($  11,634)
                              ==========    ==========    ==========
</TABLE>

         TRANSACTIONS WITH SHAREHOLDERS

                  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 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.

                  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, 2001 and 2002, TFM has a non-interest bearing receivable from Grupo
TFM of $67,837 and $68,040, 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.

                  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
reimbursed for its costs and expenses incurred in the performance of such
services.

                                      F-15
<PAGE>

         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) $2,500,000 paid in nine equal monthly installments beginning in April 2002,
as compensation for services rendered between January 1, 1999 and December 31,
2000; (2) and 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 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, 2002, the capital stock of TFM is represented by
1,383,988 (thousands) shares as shown below:

<TABLE>
<CAPTION>
                                                 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>

         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

                                      F-16
<PAGE>

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.

         The Government has retained a 20% interest in TFM 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 Note 3).

         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 annul
Grupo TFM's Ordinary Stockholders' Meeting held on December 31, 2001. As a
consequence the Unanimous 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% non-voting interest in Grupo TFM (see
Note 1).

         Dividends paid are not subject to income tax if paid from the Net Tax
Profit Account. Any excess over this account is subject to a tax equivalent to
51.52%, 49.25% or 47.06% depending on whether paid in 2003, 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 - 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.

         TFM and its subsidiaries had combined losses for income for tax
purposes of $140,626, $56,536 and $396,884 for the years ended December 31,
2000, 2001 and 2002, 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 (benefit) expense for income tax (credited) charged to income was
as follows:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                                  -----------------------
                                              2000          2001         2002
                                              ----          ----         ----
<S>                                        <C>           <C>          <C>
Current income tax .....................   $        -    $       79   $        -
Deferred income tax (benefit) expense ..      (17,784)        2,471       32,033
                                           ----------    ----------   ----------
Net income tax (benefit) expense .......   $  (17,784)   $    2,550   $   32,033
                                           ==========    ==========   ==========
</TABLE>

                                      F-17
<PAGE>

         Reconciliation of the income tax expense based on the statutory income
tax rate to recorded income tax (benefit) expense is shown as follows.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                                  -----------------------
                                                             2000          2001          2002
                                                             ----          ----          ----
<S>                                                       <C>           <C>           <C>
Income before income tax ..............................   $   33,030    $  104,704    $   20,599
                                                          ==========    ==========    ==========

Income tax at 35% .....................................   $   11,561    $   36,646    $    7,210
(Decrease) increase resulting from:
     Effects of inflationary components ...............       (2,058)      (12,613)        8,635
     Effects of inflation on tax loss carryforwards ...      (28,599)      (25,007)       12,362
     Non-deductible expenses ..........................        1,299           965         2,128
Change in tax rate from 35% to 32% ....................                                   (1,973)
Other - Net ...........................................           13         2,480         3,671
                                                          ----------    ----------    ----------
Net deferred income tax (benefit) expense .............   ($  17,784)   $    2,471    $   32,033
                                                          ==========    ==========    ==========
</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 2003 to
32% in 2005.

         The components of deferred tax assets and (liabilities) are comprised
of the following:

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                              ------------
                                          2001            2002
                                          ----            ----
<S>                                   <C>             <C>
Tax-loss carryforwards ............   $    269,260    $    365,871
Inventories and provisions ........         47,011          31,255
Machinery and equipment ...........         (5,284)        (42,951)
Concession rights .................       (183,145)       (251,758)
Other .............................          1,369          (5,239)
                                      ------------    ------------
Net deferred income tax asset .....   $    129,211    $     97,178
                                      ============    ============
</TABLE>

         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, 2000, 2001 and 2002 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.
There was no basis for asset tax in 2001 and 2002

         TAX LOSS CARRYFORWARDS

         At December 31, 2002, 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:

                                      F-18
<PAGE>

<TABLE>
<CAPTION>
                                           INFLATION-INDEXED
                                              AMOUNT AS OF      YEAR OF
YEAR IN WHICH LOSS AROSE                   DECEMBER 31, 2002  EXPIRATION
------------------------                   -----------------  ----------
<S>                                        <C>                <C>
1996 ...................................      $     14,690       2046
1997 ...................................           188,049       2046
1998 ...................................           291,229       2046
1999 ...................................             7,152       2046
2000 ...................................           160,993       2046
2001 ...................................            70,842       2046
2002 ...................................           407,516       2012
                                              ------------
                                              $  1,140,471
                                              ============
</TABLE>

NOTE 10 - 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, 2000, 2001 and 2002 the
concession duty expense amounted to $3,334, $3,391 and $3,267, respectively,
which was recorded as operating expense.

                  Capital lease obligations

         At December 31, 2001 and 2002, 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 18 and 19
years, respectively. At the end of the contracts the locomotives will be
returned to the lessor. As of December 31, 2001, the Company had received 150
locomotives. Rents under these agreements amounted $22.8 million in 2000, $34.1
million in 2001 and $32.5 million in 2002.

         Future minimum payments, by year and in the aggregate, under the
aforementioned leases, are as follows:

<TABLE>
YEAR ENDING DECEMBER 31,
------------------------
<S>                              <C>
2003 .........................   $   28,720
2004 .........................       28,720
2005 .........................       28,720
2006 .........................       28,720
2007 .........................       28,720
2008 and thereafter ..........      321,851
                                 ----------
                                 $  465,451
                                 ==========
</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:

                                      F-19
<PAGE>

<TABLE>
YEAR ENDING DECEMBER 31,
------------------------
<S>                              <C>
2003 .........................   $   32,830
2004 .........................       18,064
2005 .........................       12,504
2006 .........................       10,012
2007 .........................        9,084
2008 and thereafter ..........       51,143
                                 ----------
                                 $  133,637
                                 ==========
</TABLE>

                  Locomotives maintenance agreements

         The Company has entered into certain locomotive maintenance contacts
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 $30.2 million in 2001 and $35.6
million in 2002. Under this agreement, the Company will pay approximately $33
million in the following 10 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 with a
written notification upon three months notice.

                  Fuel freight service agreement

         On October 30, 2002, the Company entered into a freight service
agreement with PEMEX Refinacion, which will expire until 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>

         B) CONTINGENCIES:

         The Company and its subsidiaries are parties to various legal actions
and other claims in the ordinary course of their business, mainly related with
labor and social security obligations. Management does not believe that any
pending litigation against the Company will, individually or in the aggregate,
have a material adverse effect on its results of operations or financial
condition.

         The Company has filed a claim for the refund of approximately $262
million (Ps2,111 million) of value added tax paid in connection with the
Acquisition (see Note 1). However, a full valuation allowance has been provided
in the accompanying financial statements.

                                      F-20
<PAGE>

         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. 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 requires the fiscal authorities to
issue the VAT credit certificate only in the name of TFM. On December 6, 2002
the upper chamber of the Mexican Fiscal Court has issued a ruling denying TFM's
right to receive a value added tax refund from the Mexican Federal 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. TFM is
considering filing an additional complaint against the fiscal court's new
judgment, and believes that it will prevail. In the event TFM prevails, a third
party who can establish that its rights have been adversely and improperly
affected by the new ruling may seek to bring a claim, in a different proceeding,
against TFM. However, TFM does not believe that any third party's rights would
be improperly affected and believes that it would prevail in any such action.

         In September 2001, Ferrocarril Mexicano, S.A. de C.V. ("Ferromex")
filed a legal claim against the Company relating to payments that both parties
are required to make to each other for interline services and trackage and
haulage rights pursuant to each of their respective concessions. At the date of
issuance of these consolidated financial statements, the Company and Ferromex
have not been able to agree upon the rates that each is required to pay to the
other for such services and rights. Accordingly, in 2001 the Company has
initiated an administrative proceeding pursuant to the Mexican Railroad Services
Law and Regulations requesting a determination of such rates by the SCT to
determine the conditions and rates under which such services and rights are to
be rendered. On September 25, 2002 the third civil court of Mexico City rendered
its judgment in favor of TFM. Ferromex has appealed the judgment and it cannot
be predicted whether TFM will ultimately prevail.

         On March 14, 2002, the Company received the ruling from SCT solving the
procedures and conditions for the trackage rights for 2002. The Ministry of
Transportation was silent with respect to rates for interline services and
stated that rates for haulage services should be privately negotiated because
these services are not established under any railroad concession. The trackage
rights rates established by the Ministry of Transportation under the ruling are
to become effective immediately, and the Company and Ferromex are directed to
settle the amounts each one owes to the other for interline services and
trackage and haulage rights within a period of 45 day after TFM commence
operating under long-distance trackage rights. Although the Ministry of
Transportation's ruling establishes rates using the criteria set forth in the
Mexican railroad services law and regulations, TFM is appealing the ruling on
the grounds that it fails to establish rates for interline services and because
the Company disagrees with the methodology applied to the criteria in
calculating the trackage rights rates. The Company is also requesting a
suspension of the effectiveness of the ruling pending resolution of this appeal.

         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 transport finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving TFM
access, and in October 2002, TFM filed a counterclaim against Ferromex relating
to these actions.

         Management cannot predict whether TFM will ultimately prevail in this
proceeding and whether the rates TFM is ultimately allowed to charge will be
adequate to compensate the Company. Management believes that, even if the rates
established in the ruling go 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 the results of operations. However, Management cannot
guarantee that the competitors' usage of TFM's rail lines will not result in
losing business or that losses will be offset by revenues generated from the
payments for the rights to use TFM's tracks.

         The Company believes that the payments for interline services and
haulage owed by Ferromex exceed the amount of payments that Ferromex claims the
Company owes to Ferromex for such services and rights. Accordingly, the Company
believes that the outcome of this legal claim will not have a material adverse
effect on the financial condition of TFM.

                                      F-21
<PAGE>

NOTE 11 - RECONCILIATION OF DIFFERENCES BETWEEN IAS AND U.S. GAAP:

         The Company's combined and consolidated financial statements are
prepared in accordance with IAS which differ in certain material respects from
U.S. GAAP. The main differences between IAS 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 an on
stockholders' equity.

         a. RECONCILIATION OF NET INCOME:

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER, 31,
                                                     REFERENCE TO         ------------------------
                                                       SUBNOTE D.      2000         2001         2002
                                                     ------------      ----         ----         ----
<S>                                                  <C>            <C>          <C>          <C>
Net income (loss) under IAS ......................                  $  50,814    $ 102,154    ($ 11,350)
Deferred income tax ..............................        i            (1,824)      (6,236)     121,687
Deferred employees' statutory profit sharing .....        i             4,573       (3,066)      26,075
Deferred charges .................................       ii                           (933)         702
Depreciation .....................................      iii                                        (459)
                                                                    ---------    ---------    ---------
Net income under U.S. GAAP .......................                  $  53,563    $  91,919    $ 136,655
                                                                    =========    =========    =========
</TABLE>

         b. RECONCILIATION OF STOCKHOLDERS' EQUITY:

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER, 31,
                                                                    REFERENCE TO        ------------------------
                                                                      SUBNOTE D.         2001            2002
                                                                    ------------         ----            ----
<S>                                                                 <C>             <C>             <C>
Stockholders' equity under IAS....................................                  $   1,979,963   $   1,648,516
Deferred income tax...............................................        i               (87,889)         33,798
Deferred employees' statutory profit sharing......................        i                12,458          38,533
Deferred charges..................................................       ii                  (933)           (231)
Depreciation......................................................      iii                                  (459)
Effect on purchase of subsidiary shares...........................      iii                                20,557
                                                                                    -------------   -------------
Stockholders' equity under U.S. GAAP..............................                  $   1,903,599   $   1,740,714
                                                                                    =============   =============
</TABLE>

         c. ANALYSIS OF CHANGES IN STOCKHOLDERS' EQUITY UNDER U.S. GAAP:

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER, 31,
                                                                    REFERENCE TO        ------------------------
                                                                      SUBNOTE D.         2001            2002
                                                                    ------------         ----            ----
<S>                                                                 <C>             <C>             <C>
Balance at beginning of the year..................................                  $   1,811,680   $   1,903,599
Effect on purchase of subsidiary shares...........................      iii                               (43,410)
Treasury shares...................................................                                       (256,130)
Net income........................................................                         91,919         136,655
                                                                                    -------------   -------------
Balance at end of the year........................................                  $   1,903,599   $   1,740,714
                                                                                    =============   =============
</TABLE>

         d. SIGNIFICANT DIFFERENCES BETWEEN IAS 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

                                      F-22
<PAGE>

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. IAS 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 IAS at December 31, 2001
and 2002 are summarized below:

<TABLE>
<CAPTION>
                                                         DEFERRED INCOME          DEFERRED PROFIT
                                                            TAX ASSETS             SHARING ASSETS
                                                            ----------             --------------
                                                        2001         2002         2001      2002
                                                        ----         ----         ----      ----
<S>                                                  <C>         <C>           <C>        <C>
Amounts recorded under IAS....................       $  129,211  $     97,178
Amount determined under U.S. GAAP.............           41,322       130,976  $  12,458  $  38,533
                                                     ----------  ------------  ---------  ---------
Net difference................................       $   87,889  ($    33,798) $  12,458  $  38,533
                                                     ==========  ============  =========  =========
</TABLE>

         Under U.S. GAAP, employees' profit sharing would be considered as
operating expense.

                  ii.      Deferred charges

         During 2001, the Company incurred certain financing costs paid to third
parties which were capitalized under IAS. Under U.S. GAAP, it is required that
those costs are expensed as incurred.

         Additionally during 2002, the Company incurred 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 IAS these expenses should be capitalized and
amortized over the period of the senior notes.

                  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' 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, 2002 the depreciation of this transaction was $459. 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.

                  iv.      Earnings per share

         The weighted average number of shares outstanding for the years ended
December 31, 2000, 2001 and 2002 was 1,383,987,505. The net income per share
(basic and diluted) under U.S. GAAP was $0.039 in 2000, $0.066 in 2001 and
$0.099 in 2002.

                  v.       Sales and disposals of fixed assets

         In accordance with SAB 101, the gains or losses on sales and disposal
of fixed assets should be included in other operating expenses. Under IAS, these
expenses are included in other expenses -net. For the years ended December 31,
2000, 2001 and 2002 the (losses) or gains on sales and disposals of fixed assets
amounted to ($23,203), $53,159 and ($6,897), respectively.

                  vi.      Extraordinary item

         Under IAS, the deferred financing costs expensed for the prepayment of
the senior credit facilities for an amount of $9,227 were included in interest,
while under U.S. GAAP, it would be included in the income statement as
extraordinary item, net of taxes ($5,075).

                                      F-23
<PAGE>

                  vii.     Effect of recently issued accounting standards as
they relate to the Company

         On August 15, 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("FAS 143") "Accounting for Asset Retirement Obligations".
This statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement applies to all entities. It applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. As
used in this statement, a legal obligation is an obligation that a party is
required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract or by legal construction of a contract
under the doctrine of promissory estoppel. This statement also requires that the
fair value of a liability for and asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. This Statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Earlier application is encouraged.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April
2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." As a result, gains and losses from extinguishment of
debt will no longer be classified as extraordinary items unless they meet the
criteria of unusual or infrequent as described in APB Opinion No. 30, "Reporting
the Results of Operations -Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002.

         In July of 2002, the FASB issued Statement No. 146 ("SFAS 146"),
"Accounting for Cost Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force No. 94-3
("EITF 94-3"), "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exist an Activity (Including Certain Costs Incurred in a
Restructuring)". The principal difference between SFAS 146 and EITF 94-3 is that
FAS 146 requires that a liability for a cost associated with a exit or disposal
activity be recognized when the liability is incurred rather than at the date of
an entity's commitment to an exit plan. This Statement also revises the
definition of exit costs and established that fair value is the objective for
initial measurement of the liability.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statement 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.
This Statement 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. This Statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
Management is still assessing whether this Statement will have a material effect
on the Company's financial position or results of operation.

         In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others as Interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB Interpretation No. 34." This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognitions and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on the Company's financial statements.


                                      F-24
<PAGE>
         Management is currently evaluating the impact that the adoption of the
above-mentioned statements will have on the 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 IAS
and U.S. GAAP:

<TABLE>
<CAPTION>
                                                                                    CONDENSED, COMBINED AND
                                                                                  CONSOLIDATED BALANCE SHEETS
                                                                                         DECEMBER 31,
                                                                                         ------------
                                                                                  2001                 2002
                                                                                  ----                 ----
<S>                                                                         <C>                   <C>
Total current assets......................................................  $        290,760      $        265,222
Due from Mexican Government...............................................            81,892
Long term account receivable..............................................                                   1,388
Concession rights and related assets - Net................................         1,205,887             1,164,301
Property, machinery and equipment - Net...................................           568,755               638,714
Long-term receivable from Grupo TFM.......................................           661,275               661,478
Deferred income taxes and employees' statutory profit sharing.............            53,780               160,260
Other non-current assets..................................................            17,329                41,846
                                                                            ----------------      ----------------
         Total assets.....................................................  $      2,879,678      $      2,933,209
                                                                            ----------------      ----------------
Total short-term liabilities..............................................  $        381,453      $        147,292
Total long-term liabilities...............................................           594,626             1,045,287
                                                                            ----------------      ----------------
         Total liabilities................................................           976,079             1,192,579
                                                                            ----------------      ----------------
Minority interest.........................................................                                     (84)
                                                                            ----------------      ----------------
Capital stock.............................................................         1,758,882             1,758,882
Effect on purchase of subsidiary shares...................................            22,390               (21,395)
Treasury shares...........................................................                                (256,130)
Retained earnings.........................................................           122,327               259,357
                                                                            ----------------      ----------------
         Total stockholders' equity.......................................         1,903,599             1,740,714
                                                                            ----------------      ----------------
         Total liabilities and stockholders' equity.......................  $      2,879,678      $      2,933,209
                                                                            ================      ================
</TABLE>

<TABLE>
<CAPTION>
                                                                           CONDENSED, COMBINED AND CONSOLIDATED
                                                                                STATEMENTS OF INCOME

                                                                                 YEARS ENDED DECEMBER 31,
                                                                                 ------------------------
                                                                          2000             2001            2002
                                                                          ----             ----            ----
<S>                                                                  <C>              <C>             <C>
Transportation revenues.........................................     $      695,425   $      720,627  $      712,140
Total operating expenses........................................            549,199          520,407         539,183
                                                                     --------------   --------------  --------------
Operating income................................................            146,226          200,220         172,957
Other income (expenses) - net...................................                314          (18,902)        (12,717)
Comprehensive financing cost....................................           (103,862)         (80,613)       (113,323)
                                                                     --------------   --------------  --------------
Income before provision for deferred income taxes, minority
     interest and extraordinary item............................             42,678          100,705          46,917
Current income tax..............................................                                 (79)
Deferred income tax benefit (expense)...........................             15,960           (8,707)         89,654
Minority interest...............................................                                                  84
                                                                     --------------   --------------  --------------
Income before extraordinary item................................             58,638           91,919         136,655
Extraordinary item, net of taxes................................             (5,075)
                                                                     --------------   --------------  --------------
Net income for the year.........................................     $       53,563   $       91,919  $      136,655
                                                                     ==============   ==============  ==============
</TABLE>

                                      F-25
<PAGE>

NOTE 12 -- SUBSEQUENT EVENTS (UNAUDITED)

         On April 21, 2003, Grupo TMM and KCS announced a series of agreements
that have been approved by their respective boards of directors, that will,
following shareholder and regulatory approval, place the Kansas City Southern
Railway Company ("KCSR"), the Texas Mexican Railway Company ("Tex-Mex"), and
TFM, under the common control of a single transportation holding company, NAFTA
Rail, to be headquartered in Kansas City, Missouri. As part of the transaction
KCS will change its name to NAFTA Rail, which will trade on the New York Stock
Exchange ("NYSE").

         The common control of KCSR and Tex-Mex under NAFTA Rail, would require
approval of the U.S. Surface Transportation Board. Additionally, the acquisition
of Grupo TFM shares by NAFTA Rail would require the approval of the Competition
Commission and the Foreign Investment Commission in Mexico.

         Under the Grupo TFM acquisition agreement, TMM Multimodal, a subsidiary
of Grupo TMM, will receive 18 million shares of NAFTA Rail representing
approximately 22 percent (20% voting, 2% subject to voting restrictions) of
NAFTA Rail, $200 million in cash and a potential incentive payment of between
$100 million and $180 million based on the resolution on the resolution of
certain future contingencies (i.e., the VAT claim).

         On May 9, 2003, TFM sold 51% interest in Mexrail and its wholly-owned
subsidiary, the Tex-Mex Railway Company, to KCS for $32.6 million. The Mexrail
stock sold will 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 this agreement, TFM shall retain the right to repurchase all of the
shares from KCS at any time for an amount equal to the purchase price. Such
right shall be unconditional and may 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. Proceeds from the sale were re-invested
in TFM.

                                      F-26
<PAGE>

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

                        REPORT OF INDEPENDENT ACCOUNTANTS

Mexico City, February 28, 2003

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, 2002 and 2001, 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, 2002,
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 Auditing Standards Generally Accepted in the United States of
America. 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
Accounting 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, 2002 and 2001, and the combined
and consolidated results of their operations, the changes in stockholders'
equity and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with International Accounting Standards.

         International Accounting Standards differ in certain material respects
from Accounting Principles Generally Accepted in the United States of America.
The application of the latter would have affected the determination of the
combined and consolidated net income for each of the three years in the period
ended December 31, 2002, and the determination of combined and consolidated
stockholders' equity and combined and consolidated financial position as of
December 31, 2002 and 2001, to the extent summarized in Note 11 to the
consolidated financial statements.

PricewaterhouseCoopers

Alberto Del Castillo V. Vilchis
Audit Partner

                                      F-27
<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,
                                                                                                ------------
                                                                                            2001           2002
                                                                                            ----           ----
<S>                                                                                     <C>            <C>
ASSETS
Current assets:
     Cash and cash equivalents ......................................................   $     53,110   $     30,249
     Accounts receivable net of allowance for doubtful
         accounts of $3,568 in 2001 and $3,913 in 2002 ..............................        103,562         90,596
     Amounts due from related parties (Note 7) ......................................        (22,728)         5,316
     Other accounts receivable - Net ................................................         78,042        106,628
     Materials and supplies .........................................................         23,329         20,261
     Other current assets ...........................................................         10,030         12,200
                                                                                        ------------   ------------

          Total current assets ......................................................        290,801        265,250

Due from Mexican Government (Note 3) ................................................         81,892
Long-term account receivable ........................................................                         1,388
Concession rights and related assets - Net (Note 3) .................................      1,257,591      1,215,487
Property, machinery and equipment - Net (Note 4) ....................................        568,755        609,367
Investment held for operating purposes (Note 2i.) ...................................          6,166          7,435
Deferred financing costs ............................................................         11,647         34,281
Other assets ........................................................................            454            365
Deferred income taxes (Note 9) ......................................................        131,206        100,972
                                                                                        ------------   ------------

          Total assets ..............................................................   $  2,348,512   $  2,234,545
                                                                                        ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term liabilities:
     Commercial paper (Note 5) ......................................................   $    264,638
     Current portion of long-term debt (Note 5) .....................................                  $     18,286
     Current portion of capital lease obligations (Note 10) .........................            298            267
     Amounts owed to related parties (Note 7) .......................................         10,767          9,175
     Accounts payable and accrued expenses ..........................................        105,756        119,567
                                                                                        ------------   ------------

     Total short-term liabilities ...................................................        381,459        147,295
                                                                                        ------------   ------------

Long-term portion of capital lease obligations (Note 10) ............................          2,137          1,875
Long-term debt (Note 5) .............................................................        570,938      1,002,677
Other long-term liabilities .........................................................         21,554         40,735
                                                                                        ------------   ------------

     Total long-term liabilities ....................................................        594,629      1,045,287
                                                                                        ------------   ------------

     Total liabilities ..............................................................        976,088      1,192,582
                                                                                        ------------   ------------

Minority interest (Note 2o.) ........................................................        395,992        329,619
                                                                                        ------------   ------------

Commitments and contingencies (Note 10)

Subsequent events (Note 12)

Stockholders' equity (Note 8):
Common stock, 10,063,570 shares authorized and issued without par value .............   $    807,008   $    807,008
Treasury shares .....................................................................                      (204,904)
Effect on purchase of subsidiary shares .............................................         17,912        (33,562)
Retained earnings ...................................................................        151,512        143,802
                                                                                        ------------   ------------

     Total stockholders' equity .....................................................        976,432        712,344
                                                                                        ------------   ------------

     Total liabilities and stockholders' equity .....................................   $  2,348,512   $  2,234,545
                                                                                        ============   ============
</TABLE>

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

                                      F-28
<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,
                                                                                        -----------------------
                                                                                      2000         2001         2002
                                                                                      ----         ----         ----
<S>                                                                                <C>          <C>          <C>
Transportation revenues ........................................................   $  695,425   $  720,627   $  712,140
                                                                                   ----------   ----------   ----------

Operating expenses:
     Salaries, wages and employee benefits .....................................      111,790      128,845      124,413
     Purchased services ........................................................      138,453      147,015      163,835
     Fuel, material and supplies ...............................................       74,203       68,717       58,594
     Other costs ...............................................................      129,497      147,578      129,428
     Depreciation and amortization .............................................       77,777       79,496       82,552
                                                                                   ----------   ----------   ----------

         Total operating expenses ..............................................      531,720      571,651      558,822
                                                                                   ----------   ----------   ----------

Operating income ...............................................................      163,705      148,976      153,318
                                                                                   ----------   ----------   ----------

Other (expenses) income - Net ..................................................      (21,574)      35,572      (19,255)
                                                                                   ----------   ----------   ----------

Interest income ................................................................        2,238        4,510        4,974
Interest expense ...............................................................     (109,739)     (87,009)    (101,722)
Exchange (loss) gain - Net .....................................................       (1,424)       2,783      (17,411)
                                                                                   ----------   ----------   ----------

Net comprehensive financing cost ...............................................     (108,925)     (79,716)    (114,159)
                                                                                   ----------   ----------   ----------

Income before provision for deferred income taxes and minority interest ........       33,206      104,832       19,904

Deferred income tax benefit (expense) (Note 9) .................................       18,268       (2,652)     (30,233)
                                                                                   ----------   ----------   ----------

Income (loss) before minority interest .........................................       51,474      102,180      (10,329)

Minority interest ..............................................................      (10,163)     (20,431)       2,341
                                                                                   ----------   ----------   ----------

Net income (loss) for the year .................................................   $   41,311   $   81,749   $   (7,988)
                                                                                   ==========   ==========   ==========

Net income (loss) for the year per share (Note 2p.) ............................   $     4.10   $     8.12   $    (.886)
                                                                                   ==========   ==========   ==========
</TABLE>

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

                                      F-29
<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, 2000, 2001 AND 2002
                                 (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, 1999.............    $    807,008   $     17,912                   $     28,452   $    853,372
Net income for the year..................                                                        41,311         41,311
                                             ------------   ------------                   ------------   ------------

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
                                             ============   ============     =========     ============   ============
</TABLE>

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

                                      F-30
<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,
                                                                                   -----------------------
                                                                            2000            2001            2002
                                                                            ----            ----            ----
<S>                                                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year.....................................     $     41,311    $     81,749    $     (7,988)
                                                                        ------------    ------------    ------------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
     Depreciation and amortization.................................           77,777          79,496          82,552
     Amortization of discount on senior secured debentures and
         commercial paper..........................................           45,665          49,408          23,158
     Deferred income tax (benefit) expense.........................          (18,268)          2,652          30,233
     Provision for doubtful accounts...............................            1,852            (247)            345
     Amortization of deferred financing costs......................           14,307           3,498           5,140
     Minority interest.............................................           10,163          20,431          (2,341)
     Loss on sale of property, machinery and equipment - Net.......           23,203           7,585           6,897
     Gain on transfer of concession rights - Net...................                          (60,744)
     Changes in other assets and liabilities:
             Accounts receivable...................................          (34,277)        (17,450)         12,621
             Other accounts receivable.............................           (4,132)        (24,595)        (36,915)
             Materials and supplies................................           (3,030)          1,269           3,068
             Other current assets..................................              248          (1,084)         (2,170)
             Amounts due to related parties........................               15         (21,289)         (4,180)
             Accounts payable and accrued expenses.................           21,935          11,912          13,811
             Other non-current assets and long-term liabilities....              (62)            (44)        (11,485)
                                                                        ------------    ------------    ------------
             Total adjustments.....................................          135,396          50,798         120,734
                                                                        ------------    ------------    ------------
Net cash provided by operating activities..........................          176,707         132,547         112,746
                                                                        ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Mexrail Inc..........................................                                          (44,000)
Sale of property, machinery and equipment..........................            7,153           2,012             642
Acquisition of property, machinery and equipment...................          (66,918)        (85,245)        (89,355)
Acquisition of treasury shares.....................................                                         (162,575)
                                                                        ------------    ------------    ------------
Net cash used in investing activities..............................          (59,765)        (83,233)       (295,288)
                                                                        ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under commercial paper....................................                          (25,156)       (340,000)
Repayments for debt................................................          (15,074)
Proceeds from commercial paper.....................................          280,662                         196,738
Proceeds from senior notes.........................................                                          175,241
Proceeds from term loan facility...................................                                          128,000
Principal payment of senior secured credit facility................         (269,769)
Proceeds from revolving credit facility............................           15,102
Principal payments under capital lease obligations.................          (10,248)         (4,227)           (298)
Payments under revolving credit facility...........................         (100,100)
                                                                        ------------    ------------    ------------
Net cash (used in) provided by financing activities................          (99,427)        (29,383)        159,681
                                                                        ------------    ------------    ------------

Increase (decrease) in cash and cash equivalents...................           17,515          19,931         (22,861)
Cash and cash equivalents:
        Beginning of the year......................................           15,664          33,179          53,110
                                                                        ------------    ------------    ------------
        End of the year............................................     $     33,179    $     53,110    $     30,249
                                                                         ============    ============    ============

SUPPLEMENTAL INFORMATION:
 Cash paid during the year for interest............................     $     53,564    $     28,779    $     58,525
                                                                        ============    ============    ============

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
                                                                                        ============
</TABLE>

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

                                      F-31
<PAGE>

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

           NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
          (amounts in thousands of US dollars, 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. ("Grupo
TMM"), Nafta Rail, S.A. de C.V. ("Nafta"), an indirectly wholly-owned subsidiary
of Kansas City Southern, Inc. ("KCS") and TFM. See Note 8.

         TFM lines are comprised of approximately 2,641 (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 70% 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 and 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 the 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 acquired through the privatization previously transferred by TFM.
Arrendadora TFM is a subsidiary of TFM.

                                      F-32
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Grupo TFM and subsidiaries prepare their financial statements in
accordance with International Accounting Standards ("IAS") 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 11. 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, 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 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.  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 or market.

         e.  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.

         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.

                                      F-33
<PAGE>

         f.  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).

         g.  FOREIGN CURRENCY POSITION

         At December 31, 2002 Grupo TFM had monetary assets and liabilities
denominated in Mexican pesos of Ps1,292 million and Ps414 million (Ps1,718
million and Ps334 million, at December 31, 2001), respectively. At December 31,
2001 and 2002 the exchange rate was Ps9.18 and Ps10.45 per US dollar,
respectively. At February 28, 2003, date of issuance of these consolidated
financial statements, the exchange rate was Ps10.86 per US dollar.

         h.  DERIVATIVE FINANCIAL INSTRUMENTS

         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.

         i.  INVESTMENT HELD FOR OPERATING PURPOSES

         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, 2000,
2001 and 2002, the equity in the loss (income) of the Mexico City rail terminal
amounted $19, $915 and ($1,269), respectively and is included in other
(expenses) income-net in the statements of income.

         j.  DEFERRED FINANCING COSTS

         Includes fees and other related expenses paid by the Company to obtain
long-term debt (see Note 5). These deferred financing costs are amortized by the
effective interest method during the outstanding period of such long-term debt.

         k.  DEFERRED INCOME TAX

         Deferred income tax is determined following interperiod allocation
procedures under the liability method.

         Under this method the Company is required to establish a provision for
deferred income taxes on the tax indexation of certain non-current assets and,
in relation to an acquisition, on the difference between the acquisition cost of
the net assets acquired and their tax base.

         l.  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, 2001 and 2002, the
Company had a provision of $1,478 and $778, respectively.

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

                                      F-34
<PAGE>

         m.  REVENUE RECOGNITION

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

         n.  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 when the
expected future operating cash flows, undiscounted and without interest charges,
derived from such intangible assets and long-lived assets are less than their
carrying value.

         o.  MINORITY INTEREST

         The minority interest reflects the 20% share of the Company held by the
Government.

         p.  NET INCOME PER SHARE

         Net income 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, 2000, 2001 and 2002 was 10,063,570,
10,063,570 and 9,011,069, respectively.

         q.  CONCENTRATION OF RISK

         Over 23% 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 an allowance for doubtful
accounts.

         r.  USE OF ESTIMATES

         The preparation of the 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.

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-35
<PAGE>

         Concession rights and related assets are summarized as follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                               ------------            ESTIMATED USEFUL
                                                            2001           2002          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.............................       (215,735)      (257,839)
                                                        ------------   ------------
Concession rights and related assets - net...........   $  1,257,591   $  1,215,487
                                                        ============   ============
</TABLE>

         Amortization of concession rights was $40.5 million, $40.0 million, and
$40.2 for the years ended December 31, 2000, 2001 and 2002, 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 (expenses) income - net in
the statement of income.

         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 by FNM under capital lease arrangements (see
Note 10). Legal title to the purchased assets was transferred to TFM at that
time.

                                      F-36
<PAGE>

<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                                               ------------            ESTIMATED USEFUL
                                                             2001          2002          LIVES (YEARS)
                                                             ----          ----          -------------
<S>                                                     <C>            <C>             <C>
Locomotives.........................................    $    176,647   $    176,456            14
Freight cars........................................         105,921         98,622          12-16
Machinery of workshop...............................          17,111         17,515             8
Machinery of road...................................          28,233         30,906            14
Furniture and equipment.............................         268,198        318,677           1-15
Buildings...........................................           6,697          7,168            20
Other...............................................          67,081         77,192             8
                                                        ------------   ------------
                                                             669,888        726,536
Less accumulated depreciation and amortization......        (159,430)      (199,246)
                                                        ------------   ------------
                                                             510,458        527,290
Land................................................          37,538         37,607
Construction in progress............................          20,759         44,470
                                                        ------------   ------------
                                                        $    568,755   $    609,367
                                                        ============   ============
</TABLE>

         Depreciation of property, machinery and equipment was $37.2 million in
2000, $39.4 million in 2001 and $42.8 in 2002.

NOTE 5 - FINANCING:

         Financing is summarized as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                                  ------------
                                                              2001            2002
                                                              ----            ----
<S>                                                       <C>             <C>
SHORT-TERM DEBT:
Commercial paper (1) ..................................   $    265,000
Less-discount on commercial paper .....................           (362)
                                                          ------------    ------------
                                                          $    264,638    $          -
                                                          ============    ============
CURRENT PORTION OF LONG-TERM DEBT:
Term loan facility (6) ................................                   $     18,286
                                                          ============    ============

LONG-TERM DEBT:
Senior notes due 2007 (2) .............................   $    150,000    $    150,000
Senior discount debentures (3) ........................        443,501         443,501
Senior notes due 2012 (4) .............................                        180,000
Commercial paper (5) ..................................                        122,000
Term loan facility (6) ................................                        109,714
                                                          ------------    ------------
                                                               593,501       1,005,215
Less-discount on senior discount debentures, senior
     notes and commercial paper .......................        (22,563)         (2,538)
                                                          ------------    ------------
                                                          $    570,938    $  1,002,677
                                                          ============    ============
</TABLE>

         (1)      COMMERCIAL PAPER

         On September 17, 2002, the total amount of the 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 Company repaid the remaining $60 million of
indebtedness outstanding under the former commercial program. See (5) below.

                                      F-37
<PAGE>

         (2)      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, 2000, 2001 and 2002.

         (3)      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 will be
payable thereon prior to June 15, 2002. The SDD will mature on June 15, 2009.
The price of the SDD represents a yield to maturity of 11.75% fixed rate,
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 the
redemption prices shown in the next page (expressed in percentages of principal
amount at maturity), plus accrued and unpaid interest, if any. The unamortized
discount at December 31, 2001 amounted to $22,563.

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

         Interest expense related with the SDD amounted to $42,608, $47,763 and
$53,406 during 2000, 2001 and 2002, respectively.

         (4)      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 for 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 an 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, at any time in the event of certain changes in Mexican tax
law. 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 unamortized discount
at December 31, 2002 amounted to $2,376.

         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, for the year ended December 31, 2002.

         According to the refinancing of the commercial paper program due in
September 2002, the Company entered into two new bank facilities as follows:

                                      F-38
<PAGE>

         (5)      COMMERCIAL PAPER

         The commercial paper program consists of a two-year facility in the
amount of $122,000, which is supported by a letter of credit issued under the
bank facility. The 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 commercial paper facility rank at least pari passu with the
other senior unsecured indebtedness. The unamortized discount at December 31,
2002 amounted to $162.

         (6)      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.

         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.

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. TFM's fuel hedging program covered
approximately 25% of estimated fuel purchases. 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.

         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, 2001, the Company had eight Mexican peso call
options outstanding in the notional amount of $10 million each one, based on the
exchange rate of Ps9.973 per dollar. These options expired during 2002.

         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 will expire 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, 2002.

                                      F-39
<PAGE>

         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, 2001 was $138,000 and
$385,845, and at December 31, 2002 was $140,625 and $427,334, respectively. The
related fair value of the senior notes due 2012 at December 31, 2002 was
$179,325. 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,
                                                                               ------------
                                                                             2001           2002
                                                                             ----           ----
<S>                                                                      <C>            <C>
ACCOUNTS RECEIVABLE:
TMM Multimodal........................................................   $     20,000
Other Grupo TMM's subsidiaries........................................          2,728   $      5,316
                                                                         ------------   ------------
                                                                         $     22,728   $      5,316
                                                                         ============   ============

ACCOUNTS PAYABLE:
KCS...................................................................   $      3,284   $      1,222
Terminal Ferroviaria del Valle del Mexico, S.A. de C.V................          2,308          3,479
Other Grupo TMM's subsidiaries........................................          5,175          4,474
                                                                         ------------   ------------
                                                                         $     10,767   $      9,175
                                                                         ============   ============
</TABLE>

         The most important transactions with related parties are summarized as
follows:

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                                          -----------------------
                                                                    2000            2001            2002
                                                                    ----            ----            ----
<S>                                                             <C>              <C>            <C>
Transportation revenues....................................     $      3,410    $      3,434    $      7,645
                                                                ============    ============    ============
Management services........................................     $     (2,500)   $     (2,500)   $     (2,500)
                                                                ============    ============    ============
Other expenses.............................................     $     (5,262)   $     (9,501)   $    (11,634)
                                                                ============    ============    ============
</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) $2,500,000 paid in nine equal monthly installments beginning in April 2002,
as compensation for services rendered between January 1, 1999 and December 31,
2000; (2) and 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

                                      F-40
<PAGE>

arrears, for the period beginning January 1, 2003 at an annual rate of
$1,250,000. 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 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.

         At December 31, 2002 the capital stock of Grupo TFM is represented by
10,063,570 shares as follows:

<TABLE>
<CAPTION>
                                              NUMBER OF SHARES              NUMBER OF SHARES
                                         (FIXED PORTION OF CAPITAL    (VARIABLE PORTION OF CAPITAL
STOCKHOLDERS                                      STOCK)                        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

                                                 Series "L"                  Sub-series "L"
                                                 ----------                  --------------
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 by the 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,

                                      F-41
<PAGE>

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%
non-voting interest in Grupo TFM. (See Note 1).

         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's TFM interest,
the Government may require Grupo TMM and KCS to purchase the TFM shares at the
price discussed above. See Note 3.

         Dividends paid are not subject to income tax if paid from the Net Tax
Profit Account. Any excess over this account is subject to a tax equivalent to
51.52%, 49.25% or 47.06% depending on whether paid in 2003, 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 - 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.

         Grupo TFM and its subsidiaries had combined losses for tax purposes of
$135,816, $51,680 and $401,415 for the years ended December 31, 2000, 2001 and
2002, 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 (benefit) expense for income tax (credited) charged to income was
as follows:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                     -----------------------
                                                          2000                2001                 2002
                                                          ----                ----                 ----
<S>                                                   <C>                 <C>                 <C>
Current income tax..................................  $          -        $         79        $          -
Deferred income tax (benefit) expense...............       (18,268)              2,573              30,233
                                                      ------------        ------------        ------------
Net income tax (benefit) expense....................  $    (18,268)       $      2,652        $     30,233
                                                      ============        ============        ============
</TABLE>

         Reconciliation of the income tax expense based on the statutory income
tax rate to recorded income tax (benefit) expense is as follows:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                     -----------------------
                                                          2000                2001                2002
                                                          ----                ----                ----
<S>                                                   <C>                 <C>                 <C>
Income before income tax............................  $     33,206        $    104,832        $     19,904
                                                      ============        ============        ============
Income tax at 35%...................................  $     11,622        $     36,691        $      6,967
(Decrease) increase resulting from:
Effects of inflationary components..................        (2,603)            (10,969)              4,867
Effects of inflation on tax loss carryforwards......       (28,599)            (26,202)             14,281
Non-deductible expenses.............................           672                 911               2,128
Change in tax rate from 35% to 32%..................                                                (1,837)
Other - Net.........................................           640               2,142               3,827
                                                      ------------        ------------        ------------
Net deferred income tax (benefit) expense...........  $    (18,268)       $      2,573        $     30,233
                                                      ============        ============        ============
</TABLE>

                                      F-42
<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 2003 to
32% in 2005.

         The components of deferred tax assets and (liabilities) are comprised
of the following:

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                                ------------
                                                                           2001               2002
                                                                           ----               ----
<S>                                                                    <C>               <C>
Tax-loss carryforwards.............................................    $      287,045    $      381,954
Inventories and provisions - Net...................................            47,011            31,255
Machinery and equipment............................................            (5,284)          (42,951)
Concession rights..................................................          (198,922)         (264,046)
Other..............................................................             1,356            (5,240)
                                                                       --------------    --------------
Net deferred income tax asset......................................    $      131,206    $      100,972
                                                                       ==============    ==============
</TABLE>

         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, 2000, 2001 and 2002, 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.
There was no basis for asset tax in 2001 and 2002.

         TAX LOSS CARRYFORWARDS

         At December 31, 2002 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 the next page.

<TABLE>
<CAPTION>
                                                                INFLATION-INDEXED
                                                                  AMOUNTS AS OF
YEAR IN WHICH LOSS AROSE                                        DECEMBER 31, 2002      YEAR OF EXPIRATION
------------------------                                        -----------------      ------------------
<S>                                                             <C>                    <C>
1996......................................................       $        14,690             2046
1997......................................................               232,418             2046
1998......................................................               292,030             2046
1999......................................................                 7,152             2046
2000......................................................               160,993             2046
2001......................................................                70,842             2046
2002......................................................               412,168             2012
                                                                 ---------------
                                                                 $     1,190,293
                                                                 ===============
</TABLE>

NOTE 10 - 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, 2000, 2001 and 2002 the
concession duty expense amounted to $3,334, $3,391 and $3,267, respectively,
which was recorded as operating expense.

                                      F-43
<PAGE>

                  Capital lease obligations

         At December 31, 2001 and 2002, 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 18 and 19
years, respectively. At the end of the contracts the locomotives will be
returned to the lessor. As of December 31, 2002, the Company had received 150
locomotives. Rents under these agreements amounted to $22.8 million in 2000,
$34.1 million in 2001 and $32.5 million in 2002.

         Future minimum payments, by year and in the aggregate, under the
aforementioned leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S>                                                                        <C>
2003....................................................................   $     28,720
2004....................................................................         28,720
2005....................................................................         28,720
2006....................................................................         28,720
2007....................................................................         28,720
2008 and thereafter.....................................................        321,851
                                                                           ------------
                                                                           $    465,451
                                                                           ============
</TABLE>

                  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>
YEAR ENDED DECEMBER 31,
-----------------------
<S>                                                                       <C>
2003....................................................................  $     32,830
2004....................................................................        18,064
2005....................................................................        12,504
2006....................................................................        10,012
2007....................................................................         9,084
2008 and thereafter.....................................................        51,143
                                                                          ------------
                                                                          $    133,637
                                                                          ============
</TABLE>

                  Locomotives maintenance agreements

         The Company has entered into two locomotives 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 and
$35.6 million in 2002. Under this agreement, the Company will pay approximately
$33 million in the following 10 years.

                                      F-44
<PAGE>

                  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 with a
written notification upon three months notice.

                  Fuel freight service agreement

         On October 30, 2002, the Company entered into a freight service
agreement with PEMEX Refinacion, which will expire until 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>

         B) CONTINGENCIES:

         Grupo TFM and its subsidiaries are parties to various legal actions and
other claims in the ordinary course of their business, mainly related with labor
and social security obligations. Management does not believe that any pending
litigation against Grupo TFM and subsidiaries will, individually or in the
aggregate, have a material adverse effect on their results of operations or
financial condition.

         The Company has filed a claim for the refund of approximately $262
million (Ps 2,111 million) of value added tax paid in connection with the
Acquisition (see Note 1). However, a full valuation allowance has been provided
in the accompanying consolidated financial statements.

         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. 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 requires the fiscal authorities to
issue the VAT credit certificate only in the name of TFM. On December 6, 2002
the upper chamber of the Mexican Fiscal Court has issued a ruling denying TFM's
right to receive a value added tax refund from the Mexican Federal 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. TFM is
considering filing an additional complaint against the fiscal courts new
judgment, and in both instances believes that it will prevail. In the event TFM
prevails, a third party who can establish that its rights have been adversely
and improperly affected by the new ruling may seek to bring a claim, in a
different proceeding, against TFM. However, TFM does not believe that any third
party's rights would be improperly affected and believes that it would prevail
in any such action.

         In September 2001, Ferrocarril Mexicano, S.A. de C.V. ("Ferromex")
filed a legal claim against the Company relating to payments that both parties
are required to make to each other for interline services and trackage and
haulage rights pursuant to each of their respective concessions. At the date of
issuance of these consolidated financial statements, the Company and Ferromex
have not been able to agree upon the rates that each is required to pay to the
other for such services and rights. Accordingly, in 2001 the Company has
initiated an administrative proceeding pursuant to the Mexican Railroad Services
Law and Regulations requesting a determination of such rates by the SCT to
determine the conditions and rates under which such services and rights are to
be rendered. On September 25, 2002 the third civil court of Mexico City rendered
its judgment in favor of TFM. Ferromex has appealed the judgment and it cannot
be predicted whether TFM will ultimately prevail.

                                      F-45
<PAGE>

         On March 14, 2002, the Company received the ruling from SCT solving the
procedures and conditions for the trackage rights for 2002. The Ministry of
Transportation was silent with respect to rates for interline services and
stated that rates for haulage services should be privately negotiated because
these services are not established under any railroad concession. The trackage
rights rates established by the Ministry of Transportation under the ruling are
to become effective immediately, and the Company and Ferromex are directed to
settle the amounts each one owes to the other for interline services and
trackage and haulage rights within a period of 45 day after TFM commence
operating under long-distance trackage rights. Although the Ministry of
Transportation's ruling establishes rates using the criteria set forth in the
Mexican railroad services law and regulations, TFM is appealing the ruling on
the grounds that it fails to establish rates for interline services and because
the Company disagree with the methodology applied to the criteria in calculating
the trackage rights rates. The Company is also requesting a suspension of the
effectiveness of the ruling pending resolution of this appeal.

         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 transport finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving TFM
access, and in October 2002, TFM filed a counterclaim against Ferromex relating
to these actions.

         Management cannot predict whether TFM will ultimately prevail in this
proceeding and whether the rates TFM is ultimately allowed to charge will be
adequate to compensate the Company. Management believes that, even if the rates
established in the ruling go 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 the results of operations. However, Management cannot
guarantee that the competitors' usage of TFM's rail lines will not result in
losing business or that losses will be offset by revenues generated from the
payments for the rights to use TFM's tracks. The Company believes that the
payments for interline services and haulage owed by Ferromex exceed the amount
of payments that Ferromex claims the Company owes to Ferromex for such services
and rights. Accordingly, the Company believes that the outcome of this legal
claim will not have a material adverse effect on the financial condition of TFM.

NOTE 11 - RECONCILIATION OF DIFFERENCES BETWEEN IAS AND U.S. GAAP:

         The Company's combined and consolidated financial statements are
prepared in accordance with IAS which differ in certain material respects from
U.S. GAAP. The main differences between IAS 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.              2000           2001           2002
                                                          ----------          ----           ----           ----
<S>                                                      <C>             <C>             <C>            <C>
Net income (loss) under IAS..........................                    $     41,311    $     81,749   $     (7,988)
Deferred income tax..................................           i              (1,822)         (6,679)       121,738
Deferred employees' statutory profit sharing.........           i               4,573          (2,623)        25,792
Deferred charges.....................................          ii                                (933)           702
Depreciation.........................................         iii                                               (459)
Effect of U.S. GAAP adjustments on
     minority interest...............................                            (550)          2,047        (29,601)
                                                                         ------------    ------------   ------------
Net income under U.S. GAAP...........................                    $     43,512    $     73,561   $    110,184
                                                                         ============    ============   ============
</TABLE>

                                      F-46
<PAGE>

         b.  RECONCILIATION OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                       -----------------------
                                                                 REFERENCE TO
                                                                   SUBNOTE d.        2001               2002
                                                                   ----------        ----               ----
<S>                                                              <C>             <C>                <C>
Stockholders' equity under IAS................................                   $    976,432       $    712,344
Deferred income tax...........................................         i              (88,332)            33,406
Deferred employees' statutory profit sharing..................         i               12,901             38,693
Deferred charges..............................................         ii                (933)              (231)
Depreciation..................................................         iii                                  (459)
Effect on purchase of subsidiary shares.......................         iii                                16,447
Effect of U.S. GAAP adjustments on
     minority interest........................................                         15,273            (14,328)
                                                                                 ------------       -------------
Net income under U.S. GAAP....................................                   $    915,341       $    785,872
                                                                                 ============       ============
</TABLE>

         c.  ANALYSIS OF CHANGES IN STOCKHOLDERS' EQUITY UNDER U.S. GAAP:

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                       -----------------------
                                                                 REFERENCE TO
                                                                   SUBNOTE d.       2001                2002
                                                                   ----------       ----                ----
<S>                                                              <C>             <C>                <C>
Balance at beginning of the year..............................                   $    841,780       $    915,341
Effect on purchase of subsidiary shares.......................        iii                                (34,749)
Treasury shares...............................................                                          (204,904)
Net income....................................................                         73,561            110,184
                                                                                 ------------       ------------
Balance at end of the year....................................                   $    915,341       $    785,872
                                                                                 ============       ============
</TABLE>

         d.  SIGNIFICANT DIFFERENCES BETWEEN IAS AND U.S. 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. IAS do not require the
establishment of assets or liabilities for these differences.

                                      F-47
<PAGE>

         The differences in the net deferred income tax and employees' statutory
profit sharing assets determined under U.S. GAAP and IAS at December 31, 2001
and 2002 are summarized below:

<TABLE>
<CAPTION>
                                                                DEFERRED INCOME                DEFERRED PROFIT
                                                                   TAX ASSETS                  SHARING ASSETS
                                                            -------------------------     --------------------------
                                                               2001            2002          2001            2002
                                                               ----            ----          ----            ----
<S>                                                         <C>             <C>           <C>             <C>
Amounts recorded under IAS.........................         $ 131,206       $ 100,972     $        -      $        -
Amount determined under U.S. GAAP..................            42,874         134,378         12,901          38,693
                                                            ---------       ---------     ----------      ----------
Net difference.....................................         $  88,332       $ (33,406)    $   12,901      $   38,693
                                                            =========       =========     ==========      ==========
</TABLE>

         Under U.S. GAAP, employee 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 IAS amounting to $933. Under U.S.
GAAP, it is required that these costs are expensed as incurred.

         Additionally during 2002, the Company incurred 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 IAS these expenses should be capitalized and
amortized over the period of the senior notes.

                  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' 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, 2002 the depreciation of this transaction was $459. 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, 2000, 2001 and 2002 was 10,063,570, 10,063,570 and 9,011,069,
respectively. The net income per share (basic and diluted) under U.S. GAAP was
$4.32 in 2000, $7.31 in 2001 and $12.23 in 2002.

                  v.       Sales and disposals of fixed assets

         In accordance with SAB 101, the gains or losses on sales and disposals
of fixed assets should be included in other operating expenses. Under IAS, these
expenses are included in other (expenses) income - net. For the years ended
December 31, 2000, 2001 and 2002 the (losses) or gains on sales and disposals of
fixed assets amounted to ($23,203), $53,159 and ($6,897), respectively.

                  vi.      Extraordinary item

         Under IAS, the deferred financing costs expensed for the pre-payment of
the Senior credit facilities for an amount of $9,227 were included in interest
expense, while under U.S. GAAP, it would be included in the income statement as
extraordinary item, net of taxes ($5,075).

                                      F-48
<PAGE>

                  vii.     Effect of recently issued accounting standards as
they relate to the Company

         On August 15, 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("FAS 143") "Accounting for Asset Retirement Obligations".
This Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement applies to all entities. It applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. As
used in this Statement, a legal obligation is an obligation that a party is
required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract or by legal construction of a contract
under the doctrine of promissory estoppel. This Statement also requires that the
fair value of a liability for and asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. This Statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Earlier application is encouraged.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April
2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." As a result, gains and losses from extinguishment of
debt will no longer be classified as extraordinary items unless they meet the
criteria of unusual or infrequent as described in APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002.

         In July of 2002, the FASB issued Statement No. 146 ("SFAS 146"),
"Accounting for Cost Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force No. 94-3
("EITF 94-3"), "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exist an Activity (Including Certain Costs Incurred in a
Restructuring)". The principal difference between SFAS 146 and EITF 94-3 is that
FAS 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than at the date of
an entity's commitment to an exit plan. This Statement also revises the
definition of exit costs and established that fair value is the objective for
initial measurement of the liability.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statement 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.
This Statement 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. This Statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
Management is still assessing whether this Statement will have a material effect
on the Company's financial position or results of operation.

         In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others as Interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB Interpretation No. 34." This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognitions and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on the Company's financial statements.

                                      F-49
<PAGE>

         Management is currently evaluating the impact that the adoption of the
above-mentioned statements will have on the 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 IAS
and U.S. GAAP:

<TABLE>
<CAPTION>
                                                                          CONDENSED, COMBINED AND CONSOLIDATED
                                                                                    BALANCE SHEETS

                                                                                      DECEMBER 31,
                                                                                      ------------
                                                                              2001                   2002
                                                                              ----                   ----
<S>                                                                      <C>                    <C>
Total current assets...............................................      $      290,801         $      265,250
Due from Mexican Government .......................................              81,892
Long-term account receivable.......................................                                      1,388
Concession rights and related assets - Net.........................           1,257,591              1,215,487
Property, machinery and equipment - Net............................             568,755                638,716
Deferred income taxes and employees' statutory profit sharing......              55,775                163,822
Other non-current assets...........................................              17,334                 41,850
                                                                         --------------         --------------
          Total assets.............................................      $    2,272,148         $    2,326,513
                                                                         ==============         ==============

Total short-term liabilities.......................................      $      381,459         $      147,295
Total long-term liabilities........................................             594,629              1,045,287
                                                                         --------------         --------------
          Total liabilities........................................             976,088              1,192,582
                                                                         --------------         --------------
Minority interest..................................................             380,719                348,059
                                                                         --------------         --------------

Capital stock......................................................             807,008                807,008
                                                                         --------------
Treasury Shares....................................................                                   (204,904)
Effect on purchase of subsidiary shares............................              17,912                (17,115)
Retained earnings..................................................              90,421                200,883
                                                                         --------------         --------------
          Total stockholders' equity...............................             915,341                785,872
                                                                         --------------         --------------
          Total liabilities and stockholders' equity...............      $    2,272,148         $    2,326,513
                                                                         ==============         ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                  CONDENSED, COMBINED AND CONSOLIDATED
                                                                           STATEMENTS OF INCOME

                                                                        YEAR ENDED DECEMBER 31,
                                                                        -----------------------
                                                                    2000          2001          2002
                                                                    ----          ----          ----
<S>                                                              <C>           <C>           <C>
Transportation revenues ......................................   $  695,425    $  720,627    $  712,140
Total operating expenses .....................................      550,350       521,115       540,617
                                                                 ----------    ----------    ----------
Operating income .............................................      145,075       199,512       171,523
Other income (expenses) - Net ................................        1,629       (17,587)      (12,358)
Comprehensive financing cost .................................     (103,850)      (80,649)     (113,226)
                                                                 ----------    ----------    ----------
Income before provision for deferred income taxes, minority
     interest and extraordinary item .........................       42,854       101,276        45,939
Current income tax ...........................................                        (79)
Deferred income tax benefit (expense) ........................       16,446        (9,252)       91,505
Minority interest ............................................      (10,713)      (18,384)      (27,260)
                                                                 ----------    ----------    ----------
Income before extraordinary item .............................       48,587        73,561       110,184
Extraordinary item, net of taxes .............................       (5,075)
                                                                 ----------    ----------    ----------
Net income for the year ......................................   $   43,512    $   73,561    $  110,184
                                                                 ==========    ==========    ==========
</TABLE>

                                      F-50
<PAGE>

NOTE 12 -- SUBSEQUENT EVENTS (UNAUDITED)

         On April 21, 2003, Grupo TMM and KCS announced a series of agreements
that have been approved by their respective boards of directors, that will,
following shareholder and regulatory approval, place the Kansas City Southern
Railway Company ("KCSR"), the Texas Mexican Railway Company ("Tex-Mex"), and
TFM, under the common control of a single transportation holding company, NAFTA
Rail, to be headquartered in Kansas City, Missouri. As part of the transaction
KCS will change its name to NAFTA Rail, which will trade on the New York Stock
Exchange ("NYSE").

         The common control of KCSR and Tex-Mex under NAFTA Rail, would require
approval of the U.S. Surface Transportation Board. Additionally, the acquisition
of Grupo TFM shares by NAFTA Rail would require the approval of the Competition
Commission and the Foreign Investment Commission in Mexico.

         Under the Grupo TFM acquisition agreement, TMM Multimodal, a subsidiary
of Grupo TMM, will receive 18 million shares of NAFTA Rail representing
approximately 22 percent (20% voting, 2% subject to voting restrictions) of
NAFTA Rail, $200 million in cash and a potential incentive payment of between
$100 million and $180 million based on the resolution on the resolution of
certain future contingencies (i.e., the VAT claim).

         On May 9, 2003, TFM sold 51% interest in Mexrail and its wholly-owned
subsidiary, the Tex-Mex Railway Company, to KCS for $32.6 million. The Mexrail
stock sold will 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 this agreement, TFM shall retain the right to repurchase all of the
shares from KCS at any time for an amount equal to the purchase price. Such
right shall be unconditional and may 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. Proceeds from the sale were re-invested
in TFM.

                                      F-51
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT
 NUMBER                                EXHIBIT
 ------                                -------

  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.

  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.

  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).

  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).

<PAGE>

EXHIBIT
 NUMBER                                EXHIBIT
 ------                                -------

  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.

  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.

  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).

                                       -2-

<PAGE>

EXHIBIT
 NUMBER                                EXHIBIT
 ------                                -------

  4.11*        Amendment, dated as of April 30, 2002, to the TMM Management
               Services Agreement.

  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).

  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 21, 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. 333-99075).

  12.1*        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.

                                       -3-
[{"type": "20-F", "sequence": "1", "filename": "y87976e20vf.txt", "description": "FORM 20-F", "secsgml_size_bytes": 656496}]
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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, 2002

                                       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
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, 2002 was:
TFM, S.A. de C.V.                                       Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.
-----------------                                       -------------------------------------------------------
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
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-
TABLE OF CONTENTS
PAGE
                                                                                                             ----
PART I

ITEM 1.        IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...........................................4
ITEM 2.        OFFER STATISTICS AND EXPECTED TIMETABLE.........................................................4
ITEM 3.        KEY INFORMATION.................................................................................4
ITEM 4.        INFORMATION ON THE COMPANY.....................................................................18
ITEM 5.        OPERATING AND FINANCIAL REVIEW AND PROSPECTS...................................................44
ITEM 6.        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................................................61
ITEM 7.        MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............................................68
ITEM 8.        FINANCIAL INFORMATION..........................................................................73
ITEM 9.        THE OFFER AND LISTING..........................................................................74
ITEM 10.       ADDITIONAL INFORMATION.........................................................................74
ITEM 11.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................................86
ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........................................88

                                     PART II

ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES................................................88
ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS...................88
ITEM 15.       CONTROLS AND PROCEDURES........................................................................88
ITEM 16A.      AUDIT COMMITTEE FINANCIAL EXPERT...............................................................89
ITEM 16B.      CODE OF ETHICS.................................................................................89
ITEM 16C.      PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................................................89

                                    PART III

ITEM 17.       FINANCIAL STATEMENTS...........................................................................89
ITEM 18.       FINANCIAL STATEMENTS...........................................................................89
ITEM 19.       EXHIBITS.......................................................................................90
In this annual report, references to "$," "$U.S." 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-
This report constitutes the Annual Report on Form 20-F for the fiscal
year ended December 31, 2002 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"). 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 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 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 (the "United States");

     -   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, United States ("U.S.") and global economic, political and
         social conditions;

     -   the effects of the North American Free Trade Agreement, or "NAFTA," on
         the level of trade among Mexico, the United States and Canada;

     -   the timing of our receipt of the recent value added tax ("VAT") award;

     -   the effects of our employee training, technological improvements and
         capital expenditures on labor productivity, operating efficiencies and
         service reliability;

     -   changes in governmental regulations or policies;

     -   economic uncertainty caused by the economic slowdown in the United
         States following the terrorist attacks in 2001; and

     -   other factors described in this report.
CERTAIN RECENT DEVELOPMENTS

GRUPO TMM, S.A. ("GRUPO TMM")

         Grupo TMM indirectly owns 51.0% of Grupo TFM's unrestricted voting
shares, giving Grupo TMM voting control of Grupo TFM. During late 2002 and early
2003, Grupo TMM presented various offers to holders of its notes due on May 15,
2003 (the "2003 TMM notes"), in order to extend the maturity date of the issue
through a bond exchange. However, Grupo TMM did not obtain the percentage of
support required for the bond exchange to be completed. The 2003 TMM notes
matured on May 15, 2003 and Grupo TMM has not repaid the principal amount to
date. As a result, Grupo TMM is in default under the terms of the 2003 TMM
notes, and such default has resulted in a cross-default under their notes due in
2006 (the "2006 TMM notes").

         Grupo TMM has stated that it is currently exploring a number of
alternatives regarding its liquidity and that it intends to engage the holders
of the 2003 TMM notes and the holders of the 2006 TMM notes in negotiations over
the terms of a consensual restructuring of such notes.

         With respect to the TFM sale (described below), Kansas City Southern
("KCS") (formerly Kansas City Southern Industries, Inc.) has stated that it
remains firmly committed to proceeding with the transaction. Both Grupo TMM and
KCS are continuing to seek the required shareholder and regulatory approvals for
the TFM sale.

POTENTIAL SALE BY GRUPO TMM OF ITS INTEREST IN GRUPO TFM

         On April 21, 2003, Grupo TMM entered into an acquisition agreement with
KCS (the "acquisition agreement"), which owns a 49.0% voting interest in Grupo
TFM, to sell its entire interest in Grupo TFM, which owns TFM (the "TFM sale").
The acquisition of the shares of Grupo TFM by KCS is structured as a sale of the
stock of Grupo TFM owned by TMM Multimodal, S.A. de C.V. ("TMM Multimodal") to a
subsidiary of KCS. The subsidiary will then merge with and into KCS, which will
be renamed NAFTA Rail Corporation ("NAFTA Rail") and will continue to trade on
the New York Stock Exchange (the "NYSE"). Under the agreement, KCS will acquire
Grupo TMM's interest in Grupo TFM for $200.0 million in cash and 18,000,000
shares of common stock of KCS. KCS has the right to elect to pay up to $80.0
million of the cash portion of the purchase price by delivering shares of KCS
common stock valued for that purpose at $12.50 per share. On June 25, 2003, the
closing price for shares of KCS common stock on the NYSE was $11.80. In
addition, Grupo TMM will have the right to receive an additional amount of up to
$175.0 million in cash ($180.0 million if KCS elects to defer a portion of the
payment) in the event that the pending VAT claim (described herein) against the
Mexican government by TFM is successfully resolved and the amount received is
greater than the purchase price of the "put" rights for the TFM shares held by
the Mexican government. Upon completion of the TFM sale, KCS will assume Grupo
TMM's obligations to make any payment upon the exercise by the Mexican
government of its "put" rights for the 20.0% interest it holds in TFM and will
indemnify Grupo TMM against any obligation or liability relating to the exercise
by the Mexican government of the put rights. Completion of the TFM sale is
subject to approval by the stockholders of KCS and Grupo TMM, receipt of certain
governmental approvals in the United States and Mexico and other customary
conditions.

         In connection with the TFM sale, a consulting company (the
"consultant") organized by Mr. Jose Serrano, Chairman of the Board and Chief
Executive Officer of Grupo TMM and a member of the board of TFM and Grupo TFM,
will enter into a consulting agreement with KCS pursuant to which it will
provide consulting services to KCS in connection with the portion of the
business of KCS in Mexico for a period of three years. As consideration for the
services, the consultant will receive an annual fee of $600,000 per year and a
grant of 2,100,000 shares of restricted stock of KCS. The restricted stock will
vest as follows:

     -   525,000 shares upon the amendment or extension of TFM's current labor
     agreement;

     -   250,000 shares on each of the first, second and third anniversaries of
     the agreement, subject to (x) the successful resolution of the VAT claim
     and (y) the independent directors of KCS not determining that the
     consultant has engaged in certain prohibited conduct;

     -   125,000 shares on the receipt of the VAT certificate; and

     -   700,000 shares on the retirement of the TFM equity held by the Mexican
     government as part of the VAT claim or with the proceeds from the VAT
     claim.

                                       -2-
The consulting agreement provides that the vesting of the shares will
accelerate on the termination of the consulting agreement by the consultant due
to a breach by KCS, and certain changes of control of KCS (but only if there is,
or has been, a successful resolution of the VAT claim). The consulting agreement
may be extended for an additional one year at the option of KCS, upon delivery
of an additional 525,000 shares of restricted stock.

         Grupo TMM currently expects that the TFM sale will be completed in the
third quarter of 2003. If the sale occurs, NAFTA Rail will own 75.4% of Grupo
TFM (which owns 80.0% of TFM) and TFM will continue to own 24.6% of Grupo TFM.
The Mexican government will continue to own 20.0% of TFM, until it exercises its
put right. There is no assurance that the process required to obtain the
necessary regulatory approvals will not delay the closing of the TFM sale or
that the TFM sale will occur.

VAT AWARD

         See "Item 9. Financial Information. Consolidated Statements and Other
Financial Information. Legal Proceedings."

ACQUISITION OF MEXICAN GOVERNMENT INTEREST

         We acquired the call option shares through the exercise of an option
(the "call option") held by Grupo TMM, TMM Multimodal, a subsidiary of Grupo
TMM, and Caymex Transportation, Inc. ("Caymex"), a subsidiary of KCS (TMM
Multimodal and Caymex, together with Grupo TMM, the "principal shareholders").
The call option was granted by the Mexican government to the original
shareholders of Grupo TFM in connection with its acquisition of the call option
shares. The principal shareholders exercised the call option and appointed us as
purchaser of all of the call option shares pursuant to an exercise notice given
to the Mexican government on May 29, 2002. We acquired the call option shares
from Ferrocarriles Nacionales de Mexico ("FNM") and Nacional Financiera, S.N.C.
("Nafin") on July 29, 2002 for an aggregate purchase price of $256.1 million.

         The board of directors and shareholders of TFM and the shareholders of
Grupo TFM unanimously approved the offering of the 2012 senior notes and our
purchase of the call option shares.

         As a result of the acquisition of the call option shares, we expect to
achieve financial benefits and we have reduced the Mexican government's
ownership of and involvement in our business.

         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 transfer of
our redundant La Griega- Mariscala track to the Mexican government, together
with cash from our operations.

                                       -3-
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, 1998, 1999, 2000, 2001 and 2002.
We derived the selected financial data below for the years ended December 31,
2000, 2001 and 2002 from the combined and consolidated audited financial
statements of TFM and Grupo TFM on which PricewaterhouseCoopers, S.C.,
independent accountants, have reported (the "financial statements") included
elsewhere in this report. We derived the selected financial data below for the
years ended December 31, 1998 and 1999 from the combined and consolidated
information prepared to be consistent with the combined and consolidated audited
financial statements of TFM and Grupo TFM for the years ended December 31, 2000,
2001 and 2002 not included in this report. The selected audited financial data
should be read in conjunction with "Item 5. Operating and Financial Review and
Prospects," and the financial statements and notes thereto included elsewhere in
this report.

         The financial statements have been prepared in accordance with
International Accounting Standards ("IAS"), which differ in certain respects
from United States Generally Accepted Accounting Principles ("U.S. GAAP"). Note
11 to the financial statements provides a description of the principal
differences between IAS 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
YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------------------------
AMOUNTS UNDER IAS                                       1998        1999         2000        2001         2002
-------------------------------------------------     --------    --------      -------    --------      -------
                                                           (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS DATA:
  Transportation revenues........................     $479,466    $574,567     $695,425    $720,627    $ 712,140
  Operating expenses.............................      420,220     449,219      530,569     570,500      557,671
  Operating income...............................       59,246     125,348      164,856     150,127      154,469
  Interest expense...............................      104,190     106,538      109,736      87,009      101,722
  Interest income................................        3,958       4,026        2,234       4,510        4,974
  Exchange loss--net.............................      (11,026)        (43)      (1,435)      2,819      (17,508)
  (Loss) income before benefit for deferred
   income taxes..................................      (62,957)     19,012       33,030     104,704       20,599
  Net income (loss) for the period...............     $  9,431    $ 61,305     $ 50,814    $102,154   ($  11,350)
                                                      ========    ========     ========    ========    =========
  Operating income per share.....................       0.0428      0.0906       0.1191      0.1085       0.1116
  Net income (loss) for the period per share(1)..     $ 0.0068    $ 0.0443     $ 0.0367    $ 0.0738    $ (0.0082)
                                                      ========    ========     ========    ========    =========
-4-
YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------------------------------------
AMOUNTS UNDER IAS                                         1998           1999            2000            2001           2002
----------------------------------------------------  ------------    ------------   ------------    ------------   ------------
                                                                    (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
OTHER FINANCIAL DATA:
   Depreciation and amortization....................  $     71,544    $     73,235   $     76,626    $     78,345   $     81,401
   Capital expenditures.............................       111,012          55,967         66,918          85,245         89,355
   Net cash provided by (used in)...................
     Operating activities...........................        78,914          92,420        176,701         120,052        125,250
     Investing activities...........................       (98,603)        (22,671)       (59,765)        (83,233)      (295,288)
     Financing activities...........................        19,599         (64,851)       (99,427)        (29,383)       159,681

BALANCE SHEET DATA (AT END OF PERIOD):
   Total assets.....................................  $  2,782,407    $  2,786,597   $  2,804,115    $  2,956,042   $  2,841,011
   Total debt and capital lease obligations(2)......       898,027         869,321        815,551         838,011      1,023,105
   Total liabilities.............................        1,016,717         959,602        926,306         976,079      1,192,579
   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.......................  $  1,765,690    $  1,826,995   $  1,877,809    $  1,979,963   $  1,648,516
                                                      ------------    ------------   ------------    ------------   ------------
AMOUNTS UNDER U.S. GAAP

  Stockholders' equity (at end of period)...........  $  1,752,814    $  1,758,116   $  1,811,679    $  1,903,599   $  1,740,714
  Net (loss) income for the period..................        (6,445)          5,302         53,563          91,919        136,655
                                                      ============    ============   ============    ============   ============
  Net (loss) income for the period per share(1).....  $    (0.0046)   $     0.0038   $     0.0387    $     0.0664   $     0.0987
                                                      ============    ============   ============    ============   ============
------------------------

(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
YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------------------------------------
AMOUNTS UNDER IAS                                         1998           1999            2000            2001           2002
-------------------------------------------------     ------------    ------------   ------------    ------------   ------------
                                                                    (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Transportation revenues.......................     $    479,466    $    574,567   $    695,425    $    720,627   $    712,140
   Operating expenses............................          421,371         450,370        531,720         571,651        558,822
   Operating income..............................           58,095         124,197        163,705         148,976        153,318
   Interest expense..............................          100,375         106,538        109,739          87,009        101,722
   Interest income...............................              148           4,026          2,238           4,510          4,974
   Exchange loss--net............................          (10,865)            (75)        (1,424)          2,783        (17,411)
   (Loss) income before benefit for deferred
    taxes and minority interest..................          (59,859)         19,162         33,206         104,832         19,904
   (Loss) income before minority interest........           13,999          59,597         51,474         102,180        (10,329)
   Net (loss) income for the period..............     $     12,113    $     47,335   $     41,311    $     81,749   $     (7,988)
                                                      ============    ============   ============    ============   ============
   Operating income per share....................           5.7728         12.3412        16.2671         14.8035        17.0144
   Net (loss) income for the period per share(1).     $     1.2036    $     4.7036   $     4.1050    $     8.1233   $    (0.8865)
                                                      ============    ============   ============    ============   ============
OTHER FINANCIAL DATA:
   Depreciation and amortization.................     $     72,695    $     74,386   $     77,777    $     79,496   $     82,552
   Capital expenditures..........................          111,012          55,967         66,918          85,245         89,355
   Net cash provided by (used in)
     Operating activities........................           77,874          92,436        176,707         132,547        112,746
     Investing activities........................          (98,603)        (22,671)       (59,765)        (83,233)      (295,288)
     Financing activities........................           19,599         (64,851)       (99,427)        (29,383)       159,681
-5-
YEAR ENDED DECEMBER 31,
                                                      --------------------------------------------------------------------------
AMOUNTS UNDER IAS                                         1998           1999            2000            2001           2002
----------------------------------------------------  ------------    ------------   ------------    ------------   ------------
                                                                    (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA (AT END OF PERIOD):
   Total assets.....................................  $  2,176,512    $  2,178,374   $  2,196,555    $  2,348,512   $  2,234,545
   Total debt and capital lease obligations(2)......       898,027         869,321        815,551         838,011      1,023,105
   Total liabilities................................     1,017,337         959,602        926,311         976,088      1,192,582
   Common stock authorized, issued and
    outstanding(3)..................................

                                                           807,008         807,008        807,008         807,008        807,008
   Total stockholders' equity.......................  $    806,037    $    853,372   $    894,683    $    976,432   $    712,344
                                                      ------------    ------------   ------------    ------------   ------------
AMOUNTS UNDER U.S. GAAP

Stockholders' equity (at end of period).............  $    795,736    $    798,268   $    841,780    $    915,341   $    785,872
Net (loss) income for the period....................         1,812           2,532         43,512          73,561        110,184
                                                      ============    ============   ============    ============   ============
Net (loss) income for the period per share(1).......  $     0.1800    $     0.2516   $     4.3237    $     7.3096   $    12.2276
                                                      ============    ============   ============    ============   ============
-----------------
(1)  The weighted average number of shares outstanding was 10,063,570 in 1998,
     1999, 2000, and 2001 and 9,011,069 in 2002 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 1998, 1999, 2000 and 2001 and 9,011,069 in 2002.

                  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 25, 2003, the
         noon buying rate was Ps.10.48 per Dollar.

EXCHANGE RATES
YEAR/MONTH-END         PERIOD
YEAR ENDED DECEMBER 31,                          HIGH                LOW              AVERAGE               END
---------------------------------------          ----                ---              -------               ---
1998 ..................................         10.63                8.04               9.25                9.90
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
December 2002..........................         10.43               10.10              10.23               10.43
January 2003...........................         10.98               10.32              10.62               10.90
February 2003..........................         11.06               10.77              10.95               11.03
March 2003.............................         11.24               10.32              10.91               10.78
April 2003.............................         10.77               10.31              10.59               10.31
May 2003 ..............................         10.42               10.11              10.25               10.34
-----------------
Source: Federal Reserve Bank of New York.

B.       CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

C.       REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

                                       -6-
D.       RISK FACTORS

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, 2002, TFM had total outstanding indebtedness of
$1,023.1 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 new bank facilities
(the "commercial paper program" and the "term loan facility"). TFM has no
secured indebtedness. TFM's stockholders' equity was $1,648.5 million as of
December 31, 2002, resulting in a debt to equity ratio of 0.6%. Grupo TFM's
stockholders' equity was $712.3 million as of December 31, 2002, resulting in a
debt to equity ratio of 1.4%. In addition, TFM may incur more debt, subject to
the restrictions contained in the indentures governing the securities and the
credit agreements governing TFM's new commercial paper program and term loan
facility. As of December 31, 2002, there was $122.0 million outstanding under
the commercial paper program and $128.0 million outstanding under the 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 may be unable to refinance the commercial paper program or we may
not have sufficient cash to repay this debt when it becomes due. These events
could result in a default under the respective indentures governing the
securities as well as the agreements governing the 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 new 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:

                                       -7-
-   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.

OUR BUSINESS IS CAPITAL INTENSIVE AND WE MUST MAKE SIGNIFICANT ADDITIONAL
CAPITAL EXPENDITURES; FAILURE TO MAKE SUCH ADDITIONAL 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, 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 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

                                       -8-
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 2000, 2001 and 2002 we made capital expenditures of $66.9 million,
$85.2 million and $89.4 million, respectively, which represented 9.6%, 11.8% and
12.5% of our transportation revenues for each of those years, respectively. We
expect to make capital expenditures for the years ended 2003 and 2004 in an
amount equal to approximately 10.0% of our transportation revenues on an annual
basis. These capital expenditures include the expenses we expect to incur for
the rehabilitation and improvement of our secondary rail lines and the
construction of new intermodal terminals near the manufacturing plants of our
automotive customers. 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 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.

         In February 2001, a NAFTA tribunal ruled in an arbitration between the
United States and Mexico that the United States must allow Mexican trucks to
cross the border and operate on U.S. highways. NAFTA called for Mexican trucks
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 United States has
not followed 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 United States-Mexico border. These safety rules require Mexican
carriers seeking to operate in the United States 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, a
coalition of environmental, consumer and labor groups brought legal action
against the U.S. Department of Transportation alleging that the rules violated
federal environmental laws due to the failure of the U.S. Department of
Transportation to adequately review the impact on air quality in the United
States once Mexican carriers were allowed to transport beyond the 20-mile
commercial zones along the United States-Mexico border. In April 2003, the Ninth
Circuit of the U.S. Court of Appeals in San Francisco upheld a prior ruling
which 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 matter has now been remanded to the U.S.
Department of Transportation so that it may prepare the required Environmental
Impact Statement and ensure conformity with the U.S. Clean Air Act. We cannot
assure you that truck transport between Mexico and the United States 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.

         Since a key element of our business strategy is to recapture market
share lost to the trucking industry, our inability to successfully convert
traffic from truck to rail transport would materially impair our ability to
achieve our strategic objectives. 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.

                                       -9-
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. Also in direct competition for traffic to
and from southeastern Mexico is Ferrocarril del Sureste, S.A. de C.V.
("Ferrosur"), which operates the Southeast Rail Lines. 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 between Mexico City and the United States. 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 lose
the flexibility of using our tracks at certain 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 limits competition. The
acquisition was reviewed by the Mexican Antitrust Commission and on May 16, 2002
the Mexican Antitrust Commission announced that it has 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 that the Federal Courts in Mexico review the decision of the Mexican
Antitrust Commission. The Mexican Antitrust Commission is currently conducting
such review. If the acquisition is completed, the resulting railroad would
operate the largest rail system in Mexico, and we cannot assure you that this
would not have a material adverse effect on our operations, particularly on the
revenues generated by our route between Mexico City and the port of Veracruz.

         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. See also "Certain Recent Developments. Potential
Sale by Grupo TMM of its Interest in Grupo TFM."

         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.

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.

                                      -10-
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;

         -   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 a
Mexican federal court. Such federal court has suspended the rulings issued by
the Ministry of Transportation until such court makes definitive rulings.

         In September 2001, Ferromex filed a civil lawsuit against us relating
to the payments that we and Ferromex are required to make to each other for
interline services and haulage and trackage rights. We believe that this legal
claim is without merit. On September 25, 2002, the third civil court of Mexico
City rendered its judgment in our favor. Ferromex subsequently appealed the
decision before an appellate court in Mexico. On January 15, 2003, the appellate
court also rendered judgment in our favor. On February 7, 2003, Ferromex
initiated an amparo proceeding before the appropriate federal court in Mexico,
requesting that such court review the appellate court decision. Such proceeding
is currently still in progress.

         We cannot predict whether we will ultimately prevail in any of these
matters. We believe that, even if the rates established in the rulings issued by
the Ministry of Transportation go 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. However, we cannot
guarantee that our competitors' usage of our rail lines will not result in our
losing business or that our losses will be offset by revenues generated from the
payments for the rights to use our tracks. The occurrence of any of these events
could have a material adverse effect on our results of operations.

RECENT TERRORIST ACTIVITIES IN THE UNITED STATES AND THEIR CONSEQUENCES COULD
ADVERSELY AFFECT OUR OPERATIONS.

         As a result of the terrorist attacks in New York, Washington, D.C., and
Pennsylvania on September 11, 2001, there was 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 United States 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. In addition,
related political events may cause

                                      -11-
a lengthy period of uncertainty that may adversely affect our business. There
can be no assurance that there will not be further large-scale terrorist
attacks. Political and economic instability in other regions of the world,
including the United States 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, UNITED STATES-MEXICO
TRADE OR CERTAIN CYCLICAL INDUSTRIES IN WHICH OUR CUSTOMERS OPERATE 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 TFM's 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 United States and Mexico will
likely have adverse effects on our business and results of operations. Mexican
exports to the United States 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 United States-Mexico trade. In
addition, a significant portion of our business consists of imports into Mexico
from the United States. 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 United States 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 United States-Mexico trade
and the development 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 70.0% of our employees are covered by a labor agreement.
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

                                      -12-
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 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.

                                      -13-
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.

CONFLICTS MAY ARISE INVOLVING OUR STRATEGIC PARTNERS.

         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 (as defined herein) 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 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 KCS' subsidiary,
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.

         Both Grupo TMM and KCS periodically re-evaluate their businesses and
make changes, including acquisitions or divestitures, which they believe to be
consistent with their corporate objectives. In 2000, KCS spun off its financial
asset management and related operations through a distribution of the common
stock of its former subsidiary, Stilwell Financial, Inc., which owns Janus
Capital Corporation. As a result, KCS currently engages only in rail
transportation activities. 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. ("TMM PyT") in May 2003.

         On April 21, 2003, Grupo TMM entered into the acquisition agreement
with KCS, pursuant to which KCS will acquire all of the outstanding shares of
Grupo TFM, which are owned by TMM Multimodal. The acquisition of the shares of
Grupo TFM by KCS is structured as a sale of the stock of Grupo TFM owned by TMM
Multimodal to a subsidiary of KCS. The subsidiary will then merge with and into
KCS, which will be renamed NAFTA Rail and will continue to trade on the NYSE.
See "Certain Recent Developments. Potential Sale by Grupo TMM of its Interest in
Grupo TFM." As part of the transaction, KCS will assume the outstanding
contingent obligations of Grupo TMM to purchase shares of TFM held by the
government of Mexico upon exercise of a put by the Mexican government. See "Item
5B. Liquidity and Capital Resources. Contractual Obligations. Mexican
Government's Put Option." The transaction requires approval by the stockholders
of KCS and the stockholders and bondholders of Grupo TMM and certain
governmental approvals, including approval of the Mexican Antitrust Commission
and the Comision Nacional de Inversiones Extranjeras (the Mexican Foreign
Investment Commission). In addition, the investors under Grupo TMM's receivables
securitization program hold, through a trust, an option to acquire the shares of
Grupo TFM owned by TMM Multimodal, which may be exercised upon the occurrence of
certain events under such securitization. In the event of the TFM sale, the
option under such securitization will be terminated or amended. We cannot assure
you that Grupo TMM will continue to retain any of its joint venture interests or
continue to own any of its subsidiaries, including its interest in Grupo TFM, or
that KCS will continue to own KCSR, its other subsidiaries or its interest in
Grupo TFM. A change in the corporate structure of our strategic partners may
also adversely affect our operations.

                                      -14-
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 United States 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.

IF OUR PRIMARY FUEL SUPPLY CONTRACT IS TERMINATED, OR IF FUEL PRICES
SUBSTANTIALLY INCREASE, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.

         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 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 a
decrease of 8.7% in 2001, and increases of 61.3% and 21.6% in 2000 and 1999,
respectively, in our average price of fuel per gallon. In 2002, our average
price of fuel per gallon decreased by 11.2% from 2001. The price of diesel fuel
may 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 operation, 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.

                                      -15-
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.

         We are responsible for the costs of environmental compliance associated
with our ongoing operations. Pursuant to our concession, FNM is responsible for
any environmental damage caused before the commencement of our operations, and
both the Mexican government and FNM 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.

         We acquired 100.0% of the outstanding shares of Mexrail, Inc.
("Mexrail") in February 2002 and sold 51.0% of our equity interest in Mexrail to
KCS in May 2003. As a result of our ownership interest in 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 exercises significant influence over the Mexican
economy. Accordingly, 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 the securities.
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

                                      -16-
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 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 recent years has been appreciating relative to the Dollar,
the Peso depreciated 13.9% against the Dollar from December 2001 to December
2002. 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 United States 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
annual rates of inflation, as measured by changes in the Mexican National
Consumer Price Index, for the five years from 1998 through 2002 as provided by
Banco de Mexico, Mexico's central bank, were:
1998................................  18.6%
1999................................  12.3%
2000................................   9.0%
2001................................   4.4%
2002................................   5.7%
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 United States 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 the securities. 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.

                                      -17-
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 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 government and (3) equity
capital contributed by TMM, Grupo Servia and KCS.

                                      -18-
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. The Mexrail stock sold by TFM will 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 shall
retain the right to repurchase all of the shares from KCS at any time for an
amount equal to the purchase price. Such right shall be unconditional and may 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.
Proceeds from the sale were re-invested in TFM. 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. Proceeds from the sale were re-invested in TFM.

PASSENGER TRANSPORT

         Under the concession, the Mexican government has specifically reserved
the right to grant exclusive rights to provide passenger service over our rail
lines to a concessionaire other than TFM. Since we commenced operations, the
Mexican government has provided a minimal level of passenger train service to
certain areas within our service territory under an arrangement in which FNM is
responsible for the management of all passenger cars and related personnel
necessary for the provision of such service. Our obligation with respect to the
provision of passenger service by FNM is limited to providing FNM with
locomotive power, engineers and dispatching services for which we are
reimbursed.

         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.

See also "Certain Recent Developments. Grupo TMM and Potential Sale by Grupo TMM
of its Interest in Grupo TFM."

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 United States is 011-525-55-447-5836. We have no
general agent for service of process in the United States.

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.
YEARS ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                     2002                 2001            2000
                                                     -----               -------          -----
(in millions of Dollars)
CAPITAL EXPENDITURES BY AREA
    Locomotives and freight cars................     $12.2               $  11.1          $10.3
    Rail track(1)...............................      70.5                  68.9           46.9
    Telecommunication...........................       3.0                   3.2            4.8
    Other.......................................       3.7                   2.0            4.9
                                                     -----               -------          -----
    Total.......................................     $89.4               $  85.2          $66.9
                                                     =====               =======          =====
-------------------------
(1) In 2002, our capital expenditures were primarily $35.8 million for the
rehabilitation of our route between Mexico City and Lazaro Cardenas, among other
rail lines, $5.3 million for the construction of the Sanchez freight yard, $6.6
million for the construction of the Monterrey Intermodal Terminal and $8.0
million for the construction of the Toluca Intermodal Terminal. In 2001, our
capital expenditures were primarily $29.6 million for the rehabilitation of

                                      -19-
the Lazaro Cardenas line, $9.0 million for the rehabilitation of the main line
of the Texas Mexican Railway Company, $9.0 million for the purchase of the
Rosenburg-Victoria line and right of way from the Union Pacific Railroad and
$9.9 million for locomotive overhaul expenses. In 2000, our capital expenditures
were primarily $6.0 million for the rehabilitation of the Ajuno-Celaya and
Manto-Acambaro lines, $6.4 million for the rehabilitation of the Lazaro Cardenas
line, among other rail lines, $2.6 million for the construction of the Maclovio
Herrera Terminal, $3.8 million for the construction of the Ramos Arizpe support
yard, $4.2 million for the Monterrey Intermodal Terminal (land acquisition) and
$14.5 million for the Toluca Intermodal Terminal (land acquisition).
YEARS ENDED DECEMBER 31,
                                                  --------------------------------------------------
                                                   2002                 2001(1)              2000(2)
                                                  ------                -------              -------
                                                                (in millions of Dollars)
CAPITAL DIVESTITURES
     Freight cars...........................      $  5.1                $  4.5               $  12.3
     Concession equipment...................         1.9                   3.4                  16.9
     Other assets...........................          .5                   1.7                   1.2
                                                  ------                ------               -------
    Total...................................      $  7.5                $  9.6               $  30.4
                                                  ======                ======               =======
-----------------------
(1)  This figure does not reflect the sale of the La Griega-Mariscala line to
the Mexican government.

(2)  In 2000, the divestiture of concession equipment included $5.1 million of
concrete and wood ties and $11.8 million of rail and other track material.

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 United States and Canada. Our rail lines consist
of 4,244 kilometers (2,637 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 United States at Laredo, Texas and Mexico
at Nuevo Laredo, Tamaulipas. We are the only Mexican railroad that serves the
main United States-Mexico border crossing at Laredo-Nuevo Laredo, which is the
largest freight exchange point between the United States and Mexico. In
addition, we serve three of Mexico's four primary 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,

                                      -20-
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 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 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 in accordance with a business plan approved by the Mexican government.
We are also responsible for compliance with efficiency and

                                      -21-
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 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.

                                      -22-
-   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. Mexican foreign trade increased
             at an average annual rate of 18.8% from 1992 to 2000, increasing by
             15.1% in 1999 from 1998, and by 22.5% in 2000 from 1999.
             Notwithstanding a decrease of 4.1% in Mexican foreign trade in 2001
             from 2000 as a result of the slowdown of the U.S. and global
             economies, Mexican foreign trade increased 0.77% in 2002 from 2001.
             We expect to continue to participate significantly over the long
             term in the growth in NAFTA traffic between Mexico, the United
             States 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.

         -   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 2002, our operating ratio was 78.3%, 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 United States. 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 3,371 employees as of December 31,
             2002;

         -   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;

                                      -23-
-   extensively overhauled the locomotives and rolling stock we
             acquired from the government; for example, since 1997 we have
             acquired 6,800 railcars under operating leases and anticipate
             acquiring approximately 900 more railcars under operating leases in
             2003;

         -   upgraded our rolling stock and introduced state-of-the-art
             locomotives that comply with U.S. standards, thereby allowing them
             to operate in the United States, 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, 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 2002, our total revenues were $712.1 million, representing a 1.2%
decrease from 2001. Our revenues are derived from the movement of a diversified
mix of commodities and products predominantly attributable to cross-border
traffic with the United States. Our customers include leading international and
Mexican corporations. Approximately 79.2% of our total revenues in 2002 was
attributable to international freight. The majority of this international
freight was bound to or from the United States and Canada, crossing the United
States-Mexico border at Nuevo Laredo, and most of the remainder came from
overseas, principally through Mexico's seaports.

         Imports into Mexico from the United States, Canada and overseas
represented approximately 56.1%, 55.4% and 54.1% of our total revenues in 2000,
2001 and 2002, 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 and
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.

                                      -24-
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 2000, 2001 and 2002.
YEAR ENDED DECEMBER 31,
                                 ----------------------------------------------------------------------------------------
                                            2000                           2001                           2002
                                 --------------------------        ----------------------        ------------------------
                                                 PERCENT OF                    PERCENT OF                      PERCENT OF
                                 CARLOADS         CARLOADS         CARLOADS     CARLOADS         CARLOADS       CARLOADS
                                 --------        ----------        --------    ----------        --------      ----------
TRAFFIC
Local........................     566,495            79.3%          574,620        79.5%         591,267          79.4%
Interline originated.........     100,233            14.0           101,588        14.1          103,936          14.0
                                  -------           -----           -------       -----          -------         -----
   Total originated..........     666,728            93.3           676,208        93.6          695,203          93.4
                                  -------           -----           -------       -----          -------         -----
Interline received...........      47,698             6.7            46,500         6.4           48,846           6.6
Transient....................          39             0.0                 0         0.0                0           0.0
                                  -------           -----           -------       -----          -------         -----
   Total received............      47,737             6.7            46,500         6.4           48,846           6.6
                                  -------           -----           -------       -----          -------         -----
    Total....................     714,465           100.0%          722,708       100.0%         744,049         100.0%
                                  =======           =====           =======       =====          =======         =====
Core Routes

         Our rail lines comprise four 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 United States-Mexico border crossing at Nuevo Laredo, the most important
interchange for freight between the United States 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 2000, 2001 and during 2002, 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 United States. 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 58.0% of total revenues in 2000, 56.3% of total revenues in 2001
and 49.0% of total revenues in 2002.

         Products transported through Nuevo Laredo include finished vehicles and
auto parts, grain, appliances, beer, chemicals, scrap paper and plastics. In
2000, 2001 and 2002, rail traffic representing $371.5 million, $376.2 million
and $412.9 in revenues, respectively, was transported through Nuevo Laredo on
our rail lines, of which approximately 60.9%, 60.0% and 62.4%, respectively,
consisted of import traffic. In 2001, our revenues generated by this route
increased by approximately 3.75% from 2000. In 2002, our revenues generated by
this route increased by approximately 9.8% from 2001.

         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 2000, 2001 and 2002, rail traffic representing $49.0 million, $45.6
million and $37.4 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 2000, 2001 and 2002, we transported rail traffic representing
$33.2 million, $28.5 million and $33.6 million in revenues, respectively,
through Veracruz, of which approximately 92.2%, 85.5% and 78.9%, 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
United States. 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

                                      -25-
Pacific Railroad. In 2000, 2001 and 2002, rail traffic representing $35.5
million, $38.5 million and $46.6 million in revenues, respectively, 93.9%, 95.6%
and 80.6%, respectively, which consisted of import traffic, crossed the
Matamoros gateway. Freight traffic through Matamoros includes grains, steel
coils, metal scrap, chemicals and iron slabs.

         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
punctual and more efficient than that previously provided by FNM, and that FOR
THE YEAR ENDED DECEMBER 31, 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
commenced 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 a minor decrease in
revenue of 1.0% to $660.5 million in 2002 from 2001. Our revenue increases in
recent years have resulted primarily from the growth of trade between Mexico and
the United States as a result of NAFTA and U.S. economic growth during this
period. Traffic volumes in all of our product categories increased significantly
during this period, particularly in the automotive, industrial and intermodal
product segments. Beginning in December 2000, the rate of growth of our revenues
has been adversely affected by decreased demand due to the U.S. economic
slowdown.

         The following table sets forth, by product category, our revenues and
traffic volumes by carloads for 2000, 2001 and 2002.
FOR THE YEAR ENDED DECEMBER 31,
                             ----------------------------------------------------------------------------------------------
                                         2000(1)                            2001                            2002
                             -------------------------------   -----------------------------  -----------------------------
                                                     % OF                             % OF                           % OF
     PRODUCT CATEGORY        CARLOADS    REVENUES   REVENUES   CARLOADS   REVENUES  REVENUES  CARLOADS  REVENUES   REVENUES
                             --------    --------   --------   --------   --------  --------  --------  --------   --------
                                            (IN MILLIONS)             (IN MILLIONS)                  (IN MILLIONS)
Industrial products, metals
   and minerals............   203,348     $175.7      27.4%    196,119    $ 176.9      26.5%   227,067    $ 195.6     29.6%
Automotive products........   138,172      159.5      24.9     150,987      171.4      25.7    131,926      154.1     23.3
Agro-industrial products...   132,102      161.9      25.3     136,000      167.4      25.0    110,956      140.8     21.3
Chemical and petrochemical
   products................    66,369       89.2      13.9      77,159       98.6      14.8     83,406      107.7     16.3
Intermodal freight.........   146,293       38.8       6.1     162,443       42.6       6.4    190,694       56.3      8.5
Other......................    28,181       15.5       2.4           0       10.9       1.6          0        6.0      0.9
                              -------     ------     -----     -------    -------     -----    -------    -------    -----
TFM........................   714,465     $640.6     100.0%    722,708    $ 667.8     100.0%   744,049    $ 660.5    100.0%
Texas Mexican Railway
  Company..................    87,057       54.8                92,194       52.8               91,550       51.6
                              -------     ------               -------    -------              -------    -------
     Total TFM                801,522     $695.4               814,902    $ 720.6              835,599    $ 712.1
                              =======     ======               =======    =======              =======    =======
----------------------
(1) "Other" carloads for 2000 represents unallocated carloads for various
categories. The non-allocation of such amounts would not significantly affect
the carload amounts for the remaining categories in 2000.

         Manufactured Products, Industrial Products, Metals and Minerals

         In 2002, $195.6 million, or 29.6% of our total transportation revenues,
were derived from the movement of industrial products, metals and minerals, an
increase of 10.6% over revenues generated in this product category in 2001.

                                      -26-
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 United States by Grupo Modelo, S.A.
de C.V. and Cerveceria Cuauhtemoc Moctezuma, S.A. de C.V., the makers of
"Corona" and "Dos Equis," respectively. In addition, in 2000 we entered into a
long-term contract with Organizacion Mabe Corporacion, S.A. de C.V. ("Mabe") to
transport all of the products it exports to the United States and most of the
products it distributes domestically. Mabe is a major Mexican 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 United States
under the "GE" brand. Although Mabe did not use rail as its main mode of
transport prior to our commencement of operations, it currently moves close to
90.0% of its products by rail. In 2000, Mabe completed construction of a new
plant in Celaya which produces GE refrigerators and started transporting its
products from that plant over our rail lines in February of 2001.

         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 United States and Texas to paper mills, newspaper publishers and
printers in major population centers in Mexico. Large volumes of paper products
are manufactured in Mexico at plants near our rail lines by companies such as
Kimberly-Clark de Mexico, S.A. de C.V., Corporativo Copamex, S.A. de C.V. and
Grupo Industrial Durango, S.A. de C.V. for domestic and international
consumption or are exported to Mexico by U.S. paper companies such as Tetrapak,
Westvaco (Packing), International Paper, Georgia Pacific and Wyerhauser.

         Metals and Minerals

         This product segment 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 the majority of finished
products from these mills, including large amounts of steel products, are
exported to manufacturers in the United States, while the remainder is used
domestically. We also seek to convert the traffic flowing from the mines,
quarries and smelters in Mexico's northern states to 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
United States. We also transport steel wire cable which was previously moved by
ship from the port of Lazaro Cardenas to the United States, finished goods for
domestic steel producers, and raw materials for U.S. steel manufacturers that
import raw materials from Mexico to the United States and export their finished
products from the United States 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 United States. Three major companies in Mexico which move

                                      -27-
their products with us are Cemex, S.A. de C.V. ("Cemex"), Cementos Apasco, S.A.
de C.V. and Cementos Cruz Azul, Sociedad Cooperativa. Due to its bulk and
density, cement is ill-suited to road transport and, as a result, is hauled
almost exclusively by rail.

         From 1998 through 2001, we experienced a decline in the volume of
metals and minerals cargo transported on our rail lines due primarily to a
decline in domestic steel production and the loss of one of our major steel
customers to competition from Ferromex. In 2001, Mexican steel producers
continued maintaining significantly low production levels due to the adverse
effects of higher natural gas prices, and the continued appreciation of the Peso
against the Dollar during the year. The combination of these two factors have
made Mexican steel prices less competitive in the international market, causing
many U.S. steel customers to import steel from Asia and countries that formerly
were part of the Soviet Union instead of Mexico. The general slowdown of the
U.S. and Mexican economies, particularly in the automotive and construction
industries, has also had a negative effect on the import and export of finished
products such as steel coils. In 2002, our revenues in this segment were
positively impacted by the growth experienced by Cemex, primarily due to an
increase in its domestic business. We also experienced a growth of scrap metal
imports for domestic consumption and an increase of truck to rail conversions
for iron sheets.

         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 United States 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 United
States and Canada, we believe that we are the preferred rail carrier for
automotive products along this route.

         In 2002, $33.9 million, or 81.0% of the transportation revenues
generated by our Mexico City-Nuevo Laredo route and 23.3% of our total
transportation revenues, were derived from the transport of automotive products.
Our automotive revenues decreased by approximately 10.1% in 2002 from 2001. This
revenue reduction was a consequence of the decline in production due to the
continued recession in the United States. In 2002, this segment experienced a
negative impact as a result of the closure of the DaimlerChrysler AG
("DaimlerChrysler") plant in Lago Alberto, and the subsequent relocation of its
production facilities to Encantada and Coahuila. Also during 2002, Ford reduced
exports from its Cuautitlan plant. In 2002, DaimlerChrysler, General Motors
Corp. ("General Motors"), Ford Motor Company, and Volkswagen were among our most
significant customers, together representing approximately 20.6% of our total
revenues.

         Automobiles and other automotive products continue to be a mainstay of
Mexican manufacturing, and we believe they represent a growth opportunity for
both imports and exports over the long term. However, in 2002, we experienced a
decrease in our automotive revenues as compared to 2001 due to the U.S. economic
slowdown, as exports by auto manufacturers including DaimlerChrysler and General
Motors grew at a lesser rate, reflecting the slowdown in the U.S. market.

         Nonetheless, we believe that auto production in Mexico will continue to
experience growth over the long term, resulting in an increase in traffic of
imports and exports along our rail lines. We also believe that there is
potential for growth in the domestic automobile market as well as in the
movement of finished vehicles to the seaports we serve for export to markets
including the European Union. Through our automotive ramps at Monterrey and
Veracruz as well as our specialized car carriers, we believe that we are
enhancing 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 2002, $140.8 million, or approximately 21.3% of our total
transportation revenues, were derived from the movement of agro-industrial
products, which represented a decrease of 15.9% from our agro-industrial
revenues in 2001. A number of factors contributed to this segment's revenue
decrease. Extraordinary weather conditions reduced agro-industrial results in
2002. We were negatively affected by the reduction of basic grain imports due to

                                      -28-
severe droughts in the United States and Canada. Additionally, the transport of
domestic grain products was severely affected by the worst grain crop in the
last 15 years.

         The United States 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 United States
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.

         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.

         Strong positive macroeconomics trends support resumption of growth in
the agro-industrial segment. Estimated population growth from 2.0% in 2002 to
3.0% in 2003 and the elimination of tariffs on imports in 2003 for the first
time under NAFTA may provide us with opportunities for growth.

         Chemical and Petrochemical Products

         In 2002, $107.7 million, or 16.3% of our total transportation revenues,
were derived from the movement of chemical and petrochemical products. Our
revenues in this segment increased by 9.2% in 2002 from 2001. Although this
segment has been substantially affected by the economic slowdown in both the
Mexican and U.S. economies, strong performance in the transportation of certain
chemical and petrochemical products, such as plastics and petroleum coke, has
partially offset the effects of the economic downturn. Transportation of
exported and imported plastics contributed substantially to revenue growth
during 2002, mainly as a result of conversion from truck to rail transport.
Another important contributor to revenue growth during this period was the
increased transportation of petroleum coke for Cemex, which is converting many
of its plants from fuel oil combustion to petroleum coke combustion.

         The chemical and petrochemical products we transport consist of
petrochemical products imported from the United States 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. We believe that a wide range of chemical and
petrochemical products currently transported to and from Mexico by truck can be
converted to rail. We see growth potential in the movement of large volumes of
petrochemicals from plants in Tampico-Altamira, Coatzacoalcos and Mexico City to
the Houston petrochemical market. We anticipate converting other petrochemical
products such as solvents and liquid petroleum gas from truck to rail transport.

         In addition, we see growth potential with respect to the large volumes
of resin, lubricants and other raw materials imported into Mexico from the
Houston area for use in the production of plastic products and lubricants.
Shippers of chemical and petroleum products located along our rail lines (some
of which are our customers) include Pecten, S.A. de C.V., Indelpro, S.A. de
C.V., Colgate Palmolive, S.A. de C.V., PPG Industries de Mexico, S.A. de C.V.,
Procter & Gamble de Mexico, S.A. de C.V., Petrocel Chemicals and Exxon Mobil. We
believe that growth in this area will come primarily from increasing cargo
volumes transported for our existing customers as well as from converting
companies such as BASF Mexicana, S.A. de C.V., Agroindustrias Unidas de Mexico,
S.A. de C.V., Dupont, S.A. de C.V., and Polioles, S.A. de C.V. which import a
variety of petrochemical products used in the production of plastic. We also see
growth potential in the large quantities of tereftalic acid, used to make
synthetic fibers such as nylon, which are transported from manufacturing plants
in Tampico to the Pacific port of Manzanillo for export to the Far East.

         We believe that shippers moved such traffic by truck and barge because
FNM was unable to ensure safe, punctual and efficient delivery of these
products. We also believe that our current operations, including train-truck
transloading delivery to smaller customers located along our rail lines but
lacking their own rail delivery facilities, enable us to meet the needs of
shippers of these products. Our rail lines provide access to these producers
and,

                                      -29-
together with the Texas Mexican Railway Company, enable these producers to
access the Houston and Louisiana chemical and petroleum markets.

         We believe that we are in a position to attract significant business
from PEMEX, which owns plants and refineries throughout Mexico. PEMEX currently
imports significant amounts of gasoline and diesel fuel from Houston and Corpus
Christi which is then transported by truck to the main PEMEX distribution center
in central Mexico for shipment to PEMEX plants and refineries throughout Mexico.
We have succeeded in converting some of this traffic to rail since our
commencement of operations. However, since PEMEX is a government entity, we
cannot assure that our current contract with PEMEX for transportation services,
which is renewable by PEMEX on an annual basis, will be awarded to TFM in the
future. Beginning in 2000 and continuing in 2001, we lost a significant amount
of this business as PEMEX increased the use of trucking and started operating
new pipe lines. Nonetheless, we believe that we are in a position over the long
term to convert more of this traffic and to transport fuel for PEMEX directly
from the U.S. petrochemical markets in Houston and Corpus Christi to refineries
in northern Mexico.

         Beginning in late 2001 and continuing in 2002, our revenues were
adversely affected by (1) a labor strike at Fertinal, one of our main fertilizer
customers and (2) the temporary relocation by Quimir, a major customer, of its
plant from Lazaro Cardenas to Coatzacoalcos, and decreasing phosphoric acid
cargo. In addition, the U.S. economic slowdown has adversely affected exports of
petrochemical products used in the housing industry.

         Intermodal Freight

         In 2002, $56.3 million, or 8.5% 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
2002, our revenues in this product area increased by 32.2% from 2001. The volume
of intermodal traffic in Mexico has been increasing considerably in recent years
and represents an important growth opportunity, with several major international
maritime companies, including APL (American President Line), Mearsk Sealand,
Americana Ships Limited, Dicex, S.A., Navemar Internacional, S.A. de C.V. and
Mediterranean Shipping Company, shipping both imported and exported products by
intermodal freight. The vast majority of the overland portion of this intermodal
traffic in Mexico has been transported by truck. However, we believe that
increasing our piggy-back capabilities, particularly along our core routes, has
enabled us to convert some of this intermodal traffic from truck to rail
transport.

         By means of the intermodal terminals we access, we have the ability to
connect intermodal customers along our rail lines with three of the four primary
ports in Mexico. We expect to contract out hauling services at some terminals to
third parties in order to be able to provide even lower costs to our customers.
Our strategic alliance with Grupo TMM is enabling us to link intermodal
shipments between Grupo TMM and our rail lines. For example, Grupo TMM provides
road freight transportation services to leading manufacturers and other
customers within Mexico and between Mexico and the United States. In addition,
we have entered into arrangements with other intermodal shippers in the United
States (including Schneider National Inc.) which have enabled us to coordinate
"door-to-door" shipments of container traffic for our customers.

         Unlike FNM, which formerly operated our rail lines, we are providing a
more timely and reliable daily dedicated service to our intermodal customers,
which, due to the nature of container cargo transport, demand predictable
timetables and reliable service. We believe that this strategy will enable us to
convert to rail additional customers currently transporting containers by truck
across the United States-Mexico border.

         We believe that we have made progress in this respect. In 2002, we
transported intermodal traffic for new customers such as Costco, Westvaco,
Colgate, Dupont, Procter & Gamble, Editorial Televisa, and Liverpool, a leading
department store chain in Mexico. We also transported glass in intermodal
containers for Grupo Vitro, S.A. de C.V. for export to automobile manufacturers
in the United States.

         Due to the underdeveloped highway system in Mexico and the lack of
adequate security for truck freight, we believe that intermodal transport by
truck is competitive with rail only for distances of 350 kilometers or less. In
addition, in order for the highway systems to improve, government or private
investors would have to devote significant amounts of funds, which would
probably result in increased highway tolls and increased fines for violations of
weight and size restrictions. Because of our decreased labor expenses and the
significantly greater

                                      -30-
intermodal freight capacity of an average train compared to truck transport, we
expect to be increasingly competitive in intermodal shipping over relatively
short distances as well as longer distances. We do not anticipate that the
highway system in Mexico will improve in the near future.

         We do not believe that the growth of our intermodal revenues or our
ability to convert traffic from trucking to rail transport will be materially
adversely affected by implementation of the NAFTA provisions allowing Mexican
trucking companies to operate on U.S. highways.

         Fuel Freight Service Agreement

         On October 30, 2002 we entered into a freight service agreement with
PEMEX Refinacion, which will expire in 2006. Under this agreement we are
obligated to provide services valued in Pesos by the year specified as shown
below:
Minimum                   Maximum
                                      -------                   -------
                              (in thousands of Pesos)   (in thousands of Pesos)
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
                                   ============               ============
STRATEGIC PARTNERS

         We have strategic relationships with Grupo TMM and KCS, the founders
and principal shareholders of our parent company, 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 United
States-Mexico border that choose to import products from, or export products to,
markets in the United States.

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its interest in Grupo TFM."

         Grupo TMM

         Grupo TMM is the leading integrated logistics and transportation
company in Mexico. Grupo TMM holds its equity interest in Grupo TFM indirectly
through its subsidiary, TMM Multimodal. TMM Multimodal holds a 38.5% equity
interest in Grupo TFM, representing 51.0% of Grupo TFM's unrestricted voting
shares. 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. Grupo TMM
owns 100.0% of the voting shares of, and has a 96.6% economic interest in, TMM
Multimodal.

         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 PyT 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

                                      -31-
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.

         See also "Certain Recent Developments.  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 United States. 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 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 United States 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
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 51.0% of our interest in
Mexrail to KCS. The Mexrail Stock sold by TFM will 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 shall retain the right to repurchase all of the shares from KCS
at any time for an amount equal to the purchase price. Such right shall be
unconditional and may 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. Proceeds from the sale were re-invested in TFM.

         Mexrail also owns the northern half of the international rail bridge at
Laredo, while TFM operates the southern half of the bridge at Nuevo Laredo. The
Texas Mexican Railway Company directly links KCSR and TFM's rail lines.
Notwithstanding our sale of 51.0% of Mexrail, we believe that general operations
and dispatching operations of the entire international rail bridge at the United
States-Mexico border at Laredo-Nuevo Laredo will be able to continue at one
quoted rate to provide customers on both sides of the United States-Mexico
border with seamless freight services to and from Mexican markets.

         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

                                      -32-
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 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 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
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 is being expanded and will serve as a customs exchange and clearinghouse
for inbound rail traffic from the United States, 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. In 2003, the Texas Mexican
Railway Company plans to invest $10.0 million towards rehabilitation of its main
line due to the growth in traffic on such line and in order to provide better
service to its customers.

         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
will continue 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
2003. 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 United
States 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.

                                      -33-
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 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 a decrease of 8.7% in 2001, and increases of 61.3% and 21.6% in 2000
and 1999, respectively, in our average price of fuel per gallon. In 2002, our
average price of fuel per gallon decreased by 11.2% from 2001. The price of
diesel fuel may 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 United
States, 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 United States that are expected to increase intermodal business
on routes between intermodal facilities in the United States 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 United States 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
United States 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 United States. A significant portion of our contracts are both quoted and
settled in Dollars, and the vast majority of additional freight services are

                                      -34-
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 54.0% of our total revenues in
2002 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, including through the addition of a SICOTRA-based billing
system. We have installed SICOTRA-related software programs on state-of-the-art
computer hardware at GTE Data Services de Mexico's facility. We have improved
SICOTRA's functionality and are expanding the system into a fully integrated
management information system capable of interfacing with our train dispatch
systems.

         Our improvements to SICOTRA allow us to:

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

         -   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 newly installed 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.

INFORMATION TECHNOLOGY

         In 2002, we continued our customer service and operating initiatives to
support our business strategy, including the implementation of railroad
operating practices in use on major U.S. and Canadian railroads, such as the
computerization of operations management systems and employee training.

                                      -35-
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 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, 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

                                      -36-
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 vote 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. The Mexican
Antitrust Commission is currently reviewing such decision. If the acquisition is
completed, the resulting railroad would operate the largest rail system in
Mexico, and we cannot assure you that this would not have a material adverse
effect on our operations, particularly on the revenues generated by TFM's route
between Mexico City and the port of Veracruz.

         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.

         We believe that the acquisition of Ferrosur by Ferromex would not
adversely affect our rights to use portions of their tracks under our concession
and the relevant law.

         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 allows
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.

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.

         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

                                      -37-
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 The rates for trackage rights set by the Ministry of Transportation may no
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 Ministry of
Environmental Protection and Natural Resources. The 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 subsequently sold 51.0% of our equity interest in Mexrail to KCS in May
2003. As a result of our ownership interest in 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 agency agreements. There are currently no
material legal or administrative proceedings pending against us with respect to
any environmental matters, and management does not believe that continued
compliance with environmental laws will have a material adverse effect on our
financial condition or results of operations. We cannot predict the effect, if
any, that the adoption of additional or more stringent environmental laws and
regulations would have on our results of operations, cash flows or financial
condition.

                                     -38-
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 38.5% 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 owns 100.0% of the voting
shares of, and has a 96.6% economic interest in, TMM Multimodal.

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its Interest in Grupo TFM."

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 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
government, together with $18.0 million in cash from our operations.

         The Mexican government directly holds a 20.0% interest in TFM. The
government's interest in TFM consists of 276,797,501 Class III Series A and
Series B Shares with restricted voting rights which represent 20.0% of TFM's
total equity. The Mexican government has the right to sell its equity interest
in TFM by October 31, 2003 in a public offering. If a public offering of TFM
shares does not occur by that date, Grupo TFM will have the obligation 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% equity interest in TFM, indexed
to Mexican inflation. If Grupo TFM does not purchase the Mexican government's
TFM shares, the Mexican government may require Grupo TMM and KCS, or either
Grupo TMM or KCS alone, to purchase the TFM shares at such price and release
Grupo TFM from its obligation.

         See also "Certain Recent Developments. Acquisition of Mexican
Government Interest."

                                      -39-
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 government agreed to the transfer of the redundant
La Griega-Mariscala track back to the government. On February 12, 2001, the
Mexican government amended our concession title to reflect the reversion of the
La Griega-Mariscala line to the 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 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 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, 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

                                      -40-
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, 2002, our rail lines consisted of the following
track:
UNDER         TRACK USAGE
                                                                   CONCESSION          RIGHTS            TOTAL
                                                                   ----------     ---------------        -----
                                                                                  (IN KILOMETERS)
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
                                                                      =====             ===              =====
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 76.5% 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 100 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, 2002:
MAIN LINE - MEXICO CITY
                                                                TO NUEVO LAREDO                ALL LINES
                                                            -----------------------            ---------
                                                                           (IN KILOMETERS)
Continuously welded rail..................................           1,499                       3,297
Jointed rail..............................................           0                           948
                                                                     -----                       -----
      Total...............................................           1,499                       4,245
                                                                     =====                       =====
Concrete ties installed...................................           1,382                       2,511
Wood ties installed.......................................             117                       1,734
                                                                     -----                       -----
     Total................................................           1,499                       4,245
                                                                     =====                       =====
The portion of the Mexico City--Nuevo Laredo core route between Mexico
City and Queretaro (a distance of approximately 260 kilometers) has double
track, which accommodates greater traffic volume and maximum allowable speeds of
approximately 50 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 70.0% 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.

                                      -41-
There are 99 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 474 locomotives, of
which 468 are diesel, of which Electro Motive Division ("EMD"), a subsidiary of
General Motors, built 243 and GE built 225. 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. Of our
leased locomotives, we currently use 150. We lease of our owned locomotives to
the Texas Mexican Railway Company. The average age of the locomotives in our
fleet is approximately 12 years, which in 1999 represented 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 474 locomotives in our fleet, approximately 228 are assigned to
the hauling of freight, 50 are used for yard work, 99 locomotives are subleased
to third parties (50 to the Texas Mexican Railway Company, 10 of which are
running on the BNSF line under a horsepower-per-hour interchange agreement, 27
to KCSR and 12 to Ferrosur), 6 locomotives are electric (and out of service) and
73 of our yard and road engines are currently in storage. We use the remaining
18 units for miscellaneous purposes such as maintenance of way trains and
industry switching.

         The following table describes our locomotive fleet and maintenance
contractors, as more fully described under "-Improvements, Maintenance and
Repair," as of December 31, 2002.
NUMBER      NUMBER OF                      YEAR
      MAKE                 TYPE         OF UNITS       AXLES      HORSEPOWER        BUILT        MAINTAINED BY
------------------     ------------      --------     ---------    ----------       -------       -------------
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              105           6          3,000          1990-94          Alstom
          GE           E-60 (Elect.)          6           6          6,000           1984            Alstom
                                            ---
Total owned...............................  324
                                            ===
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
                                        ===
-42-
Rail cars owned and leased by us as of December 31, 2002 consisted of
the following:
OWNED       LEASED
                                                                            -----       ------
Box cars.................................................................   1,335         246
Gondolas.................................................................   1,888       1,856
Covered hoppers..........................................................     599       2,190
Flat cars................................................................     579         162
Tri-level carriers.......................................................       0           0
Bi-level carriers........................................................       0       1,279
Spine cars...............................................................       0          48
Tank cars................................................................      84         671
Cabooses.................................................................      51           0
Open top hoppers.........................................................      22         348
                                                                            -----       -----
   Total.................................................................   4,558       6,800
                                                                            =====       =====
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.

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., 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 United States 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.

                                      -43-
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 2001 and 2002, our maintenance and rehabilitation
expenses under this contract amounted to $30.2 million and $35.6 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.

         For a discussion of our capital improvements program, see "Item 3D.
Risk Factors. Our business is capital intensive and we must make significant
additional capital expenditures; failure to make such additional 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.

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. This discussion and analysis is based on, and should be read in
conjunction with the financial statements appearing elsewhere in this report.

ACCOUNTING CONSIDERATIONS

         Our financial statements are prepared in accordance with IAS, which
differ in certain material respects from U.S. GAAP. For further information on
these differences, see note 11 of the financial statements.

         Principle differences between IAS and U.S. GAAP that relate to us are
described in note 11 of our combined and consolidated financial statements. Each
of these differences affects both net income and stockholders' equity. Net
income under U.S. GAAP of TFM was $53.6 million, $91.9 million and $136.6
million for the years ended December 31, 2000, 2001 and 2002, respectively. Net
income under U.S. GAAP for Grupo TFM was $43.5 million, $73.6 and $110.2 million
for the years ended December 31, 2000, 2001 and 2002, 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 IAS, U.S. GAAP and SEC
reporting purposes. We update the results of this analysis on an ongoing basis.
If we were required to change our functional currency to Pesos, our results of
operations for IAS, U.S. GAAP and SEC reporting purposes may be substantially
different.

                                      -44-
CRITICAL ACCOUNTING POLICIES

         Our financial statements have been prepared in accordance with IAS
which differs in certain respects from U.S. GAAP. Note 11 to our financial
statements provides a description of the principal differences between IAS and
U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP of net income
and stockholders' equity.

         We have identified certain key accounting policies on which our
financial condition and results of operations are dependent. 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 IAS 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 herein.

         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.

         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 expense is a significant component of our
operating expenses. Fuel costs 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. 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.

         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

         On August 15, 2001, the FASB issued Statement No. 143 ("SFAS 143"),
"Accounting for Asset Retirement Obligations." SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs and applies
to all entities. SFAS 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and/or normal operation of a long-lived asset, except for certain
obligations of lessees. As used in SFAS 143, a legal obligation is an obligation
that a party is required to settle as a result of an existing or enacted

                                      -45-
law, statute, ordinance, or written or oral contract or by legal construction of
a contract under the doctrine of promissory estoppel. SFAS 143 also requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.

         In April of 2002, the FASB issued Statement No. 145 ("SFAS 145"),
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." As a result, companies will no longer be
allowed to classify gains and losses from extinguishments of debt as
extraordinary items unless they meet the criteria of APB 30. Gains and losses
from extinguishments of debt that have been classified as extraordinary in prior
years that do not meet the criteria of APB 30 shall be reclassified as ordinary
gains and losses on a going forward basis. In addition, SFAS 145 requires that
capital leases that are modified so that the resulting lease agreement is
classified as an operating lease be accounted for under the sale-leaseback
provisions of SFAS 28 or 98, as applicable, instead of SFAS 13. The provisions
of SFAS 145 with regard to SFAS-4 will be effective for fiscal years beginning
after May 15, 2002, and those for SFAS 13 will be effective for transactions
occurring after May 15, 2002.

         In July of 2002, the FASB issued Statement No. 146 ("SFAS 146"),
"Accounting for Costs Associated with Exit or Disposal Activities." This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Tax Force Issue No.
94-3 ("EITF 94-3"), "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred
in a Restructuring)." The principal difference between SFAS 146 and EITF 94-3 is
that SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred rather than at
the date of an entity's commitment to an exit plan. SFAS 146 also revises the
definition of exit costs and establishes that fair value is the objective for
initial measurement of the liability. The provisions of SFAS 146 are effective
for exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statement 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.
This Statement 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. This Statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
Management is still assessing whether this Statement will have a material effect
on our financial position or results of operation.

         In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others as Interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB Interpretation No. 34." This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognitions and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on our financial statements.

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

                                      -46-
RESULTS OF OPERATIONS

         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 United States and Canada and bad weather conditions affecting crops in
Mexico. Total carloads in 2002 increased by 3.0% compared to 2001. 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, 2001 and December
31, 2002.
YEAR ENDED DECEMBER 31,
                                        -----------------------------------------------------------
                                                   2001                             2002
                                        ---------------------------      --------------------------
PRODUCT CATEGORY                        CARLOADS        REVENUES         CARLOADS        REVENUES
                                        --------        ---------        --------        --------
                                                      (IN MILLIONS)                    (IN MILLIONS)
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
                                        =======         =========         =======        ========
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 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 United States 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 United States and the reduction of the exports
market. In 2002, we experienced a negative impact 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.

                                      -47-
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.
YEAR ENDED DECEMBER 31,
                                       ----------------------------------------------------------
                                                2001                           2002
                                       --------------------------     ---------------------------
                                                            % OF                            % OF
                                           AMOUNT         REVENUE         AMOUNT          REVENUE
                                       --------------     -------     --------------      -------
                                       (IN THOUSANDS)                 (IN THOUSANDS)
Salaries, wages and employee             $ 128,845
   benefits.........................                        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%
                                         =========         =====        =========         ======
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 advertisement 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.

                                      -48-
Car hire-net. 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 costs,
net of car hire income, decreased by 12.2% in the year ended December 31, 2002
from the year ended December 31, 2001. Our car hire expenses decreased primarily
because a favorable resolution was granted to us to recover the 5.0% withholding
tax we paid in 2002. We have hired U.S. railroad cars since 1998 after we began
complying with car hire rules prescribed by the AAR. We expect that net car hire
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
of our lines, new operating capacity, intermodal terminals and ongoing
investments.

         OPERATING INCOME AND OPERATING RATIO

         Our operating income 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.

         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

                                      -49-
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.

         TFM'S RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
         COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

         Revenues

         Revenues for the year ended December 31, 2001 totaled $667.8 million
compared to $640.6 million for the year ended December 31, 2000, which
represented an increase of 4.2%. The increase in 2001 was mainly attributable to
an increase of approximately 7.5% in revenues derived from haulage of automotive
products, with a corresponding increase of approximately 9.3% in automotive
traffic volumes. Total carloads in 2001 increased by 1.2% compared to 2000.
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, 2000 and December
31, 2001.
YEAR ENDED DECEMBER 31,
                                       -------------------------------------------------------------
                                                    2000                             2001
                                       ----------------------------      ---------------------------
PRODUCT CATEGORY                       CARLOADS(1)      REVENUES         CARLOADS        REVENUES
                                       -----------    -------------      --------      -------------
                                                      (IN MILLIONS)                    (IN MILLIONS)
Industrial products, metals and
  minerals.........................      203,348        $   175.7        196,119         $  176.9
Agro-industrial products...........      132,102            161.9        136,000            167.4
Automotive products................      138,172            159.5        150,987            171.4
Chemical and petrochemical
products...........................       66,369             89.2         77,159             98.6
Intermodal freight.................      146,293             38.8        162,443             42.6
Other..............................       28,181             15.5              0             10.9
                                         -------        ---------      ---------         --------
   Total...........................      714,465        $   640.6        722,708         $  667.8
                                         =======        =========      =========         ========
--------------
(1)      Carload and revenue amounts for the category "Other" for 2000 represent
         products not categorized by a specific segment. In the opinion of
         management, the non-allocation of such amounts would not significantly
         change the discussion included herein.

         Industrial products, metals and minerals. Revenues increased by $1.2
million or 0.7% in 2001 over 2000. 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
transportation of home appliances, mainly due to the start of 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 transport
of paper and forest products as a result of an increase in imports from the
United States and Canada due to more competitive prices in this market.

         Growth in our industrial products traffic was offset by a decline of
3.6% in volume primarily due to a decline in the transport of steel products in
2001 caused by a slow-down in domestic production, that reflected declining
international steel prices.

         Agro-industrial products. Revenues increased by $5.5 million or 3.4% in
2001 over 2000. This increase was partially attributable to conversion of
traffic originated at Tamaulipas from truck to rail transport. We have also
enhanced traffic conversion as a result of the development of new railroad
infrastructure at key locations. A scheduled increase in tariffs also
contributed to our revenue growth in 2001.

         Automotive products. Revenues increased by $11.9 million or 7.5% in
2001 over 2000. This increase was a result of increased transportation of
vehicles exported to the United States and Europe from manufacturing plants in
Mexico. This increased export traffic included new product launches in the North
American and European markets, such as the "PT44 Cruiser" produced by
DaimlerChrysler at its Toluca plant beginning in March 2000, the "GMT-800"
introduced by General Motors, Volkswagen's new "Beetle" and Nissan's new
"Sentra," as well as continued growth in exports of automobiles and trucks to
the United States. Another source of revenue growth in 2001 was

                                      -50-
additional traffic conversion from truck to rail transport, which trend should
continue as we open new intermodal facilities near the plants of our major
automotive customers. Nonetheless, revenue growth in 2001 was slower than that
experienced in 2000 due to decreased demand for exports as a result of the
downturn of the U.S. economy over the past year.

         Chemical and petrochemical products. Revenues increased by $9.4 million
or 10.5% in 2001 over 2000. 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 of products used in the production of plastic during the first half of
the year. 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 $3.8 million or 9.8% in 2001
over 2000. This increase was due to a great extent to continued conversion of
automotive parts traffic 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. We expect this
additional business to offset part of the impact of the U.S. economic downturn.

         Operating Expenses

         Total operating expenses amounted to $570.5 million for the year ended
December 31, 2001, compared to $530.6 million for the year ended December 31,
2000, which represents an increase of 7.5%. The following table illustrates our
operating expenses for the periods indicated as a percentage of revenues
generated during the corresponding periods.
YEAR ENDED DECEMBER 31,
                                   -------------------------------------------------------
                                               2000                          2001
                                   --------------------------      -----------------------
                                                       % OF                          % OF
                                       AMOUNT         REVENUE         AMOUNT       REVENUE
                                     ---------        -------       ---------      -------
                                   (IN THOUSANDS)                 (IN THOUSANDS)
Salaries, wages and employee
   benefits.....................     $ 111,790         16.1%        $ 128,845        17.9%
Purchased services..............       138,453         19.9           147,015        20.4
Fuel............................        67,837          9.8            59,370         8.2
Materials and supplies..........         6,366          0.9             9,349         1.3
Car hire--net...................        46,094          6.6            49,035         6.8
Rents other than car hire.......        44,901          6.5            61,311         8.5
Casualties and insurance........        18,724          2.7            21,560         3.0
Other costs.....................        19,778          2.8            15,670         2.2
Depreciation and amortization...        76,626         11.0            78,345        10.9
                                     ---------         ----         ---------        ----
  Total operating expenses.......... $ 530,569         76.3%        $ 570,500        79.2%
                                     =========         ====         =========        ====
Salaries, wages and employee benefits. Salary expenses increased 15.2%
to $128.8 million in 2001 compared to 2000. The increase was attributable to the
annual wage increase payable to our union employees, an increase in other
employee benefits that was effective July 1, 2001, an increase in the annual
average number of our full-time employees by 1.3% to 3,608 in 2001 from 3,561 in
2000 and the appreciation of the Peso against the Dollar.

         Purchased services. Costs of purchased services increased by $8.6
million or 6.2% in 2001 over 2000. 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 cars and the increase in
terminal services.

         Fuel. Our fuel expenses decreased 12.5% in the year ended December 31,
2001 compared to the year ended December 31, 2000 primarily due to an 8.8%
decrease in the average price of diesel fuel per gallon. This decrease was
partially offset by an increase in transport volume.

                                      -51-
Materials and supplies. Costs of materials and supplies consumed in the
year ended December 31, 2001 were 46.8% higher than in the year ended December
31, 2000, primarily because we had higher consumption of materials and supplies
related to our track maintenance activities.

         Car hire-net. 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 costs,
net of car hire income, increased by 6.4% in the year ended December 31, 2001
from the year ended December 31, 2000. Our car hire expenses increased primarily
because we supplemented our rolling stock by adding car carriers to serve our
automotive customers. We have hired U.S. railroad cars since 1998 after we began
complying with car hire rules prescribed by the AAR. We expect that net car hire
expenses will increase at a slower rate in 2002 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 increased by
$16.4 million or 36.5% in the year ended December 31, 2001 from the year ended
December 31, 2000 as we increased the number of long-term leases for new
locomotives and cars to provide increased capacity for our network.

         Casualties and insurance. These expenses increased 15.1% in the year
ended December 31, 2001 from the year ended December 31, 2000 due to an increase
in claims of cargo damage and higher premium rates.

         Other costs. Other costs consist primarily of employee expenses such as
the costs of meals, lodging, travel and state tax, 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, 2001 mainly due to a
decrease of $1.0 million in allowance for doubtful accounts, the elimination of
state payroll taxes in 2001 which amounted to $1.0 million in 2000 and one-time
reorganization expenses which amounted to $1.7 million, in 2001. 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, 2001 increased by $1.7 million from the year
ended December 31, 2000 primarily as a result of additional capital improvements
of our lines, new operating capacity, intermodal terminals and ongoing
investments.

         Operating Income and Operating Ratio

         Our operating income decreased to $150.1 million in the year ended
December 31, 2001 from $164.8 million in the year ended December 31, 2000,
representing a decrease of approximately 8.9%, due to the factors described
above. Our operating ratio increased to 79.2% for the year ended December 31,
2001 from 76.3% for the year ended December 31, 2000.

         Other Expenses

         Other expense-net. Our other expenses-net decreased by $57.2 million in
the year ended December 31, 2001 from the year ended December 31, 2000 due to a
one-time profit 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, 2001 was $82.5 million compared to $107.5 million in the year ended December
31, 2000. Our interest expense-net decreased due to a substantial reduction in
debt service as a result of the refinancing of outstanding indebtedness under
our senior secured credit facilities, established on June 23, 1997 (the "senior
secured credit facilities") through our commercial paper program.

         Exchange gain (loss)-net. We recorded a net foreign exchange gain of
$2.8 million in the year ended December 31, 2001 compared with a net foreign
exchange loss of $1.4 million in the year ended December 31, 2000. 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 2001
and 2000, the Dollar depreciated 4.5% and appreciated 1.4%, respectively,
relative to the Peso.

                                      -52-
Deferred income tax. Our deferred income tax expense was $2.6 million
for the year ended December 31, 2001 compared to a deferred income tax benefit
of $17.8 million for the year ended December 31, 2000. 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 benefit in the year ended December 31,
2000 is a result of several specific provisions of Mexico's income tax law that
permit us to amortize the costs of acquiring the concession rights and related
assets over a six-year period for income tax purposes and to restate the costs
of these assets on an annual basis to reflect the Mexican inflation rate. Our
taxes are computed based on our results of operations in Pesos and therefore are
affected by the correlation of the Peso-Dollar exchange rate with the Mexican
inflation rate and, consequently, the restatement benefit was lower.

         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 information 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. 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. 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, 2002, 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, 2002 and December 31, 2001. Net cash provided by operating
activities was $125.2 million for 2002 compared to $120.1 million for 2001. The
increase in 2002 resulted mainly from the increase in operating income as well
as changes in non-cash items and changes in both operating assets and
liabilities as disclosed below. We also generated positive cash flows from
operating activities in the years ended December 31, 2001 and 2000 as compared
to prior periods. Net cash provided from operating activities was $120.1 million
for 2001 compared to $176.7 million for 2000. The decrease resulted from
decreases in operating income, changes in both operating assets and liabilities
and changes in non-cash items, each of which is more fully described in the
following table.

                                      -53-
The following table summarizes cash flows from operating activities for
the periods indicated.
YEAR ENDED DECEMBER 31,
                                                                       ------------------------------------------
                                                                         2000              2001           2002
                                                                       --------          --------       --------
                                                                                      (IN THOUSANDS)
Net income for the period...........................................   $ 50,814          $102,154       $(11,350)
  Depreciation and amortization.....................................     76,626            78,345         81,401
  Amortization of discount on 11.75% senior discount debentures.....     45,665(1)         49,408(1)      23,158
  Deferred income tax (benefit) expense.............................    (17,784)            2,550         32,033
  Provision for doubtful accounts...................................      1,865              (247)           345
  Amortization of deferred financing costs..........................     14,307             3,498          5,140
  Minority interest.................................................                                         (84)
  Loss on sale of property, machinery and equipment--net............     23,203             7,585          6,897
  Gain on transfer of concession rights--net........................                      (60,744)
  Changes in current assets and liabilities.........................    (17,995)          (62,497)       (12,290)
                                                                       --------          --------       --------
Net operating cash flows............................................   $176,701          $120,052       $125,250
                                                                       ========          ========       ========
--------------------
(1)  Includes amortization of discount on senior discount debentures and
     commercial paper.

CASH FLOWS FROM INVESTING ACTIVITIES

         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 of our rail lines, addition of 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 price was paid by crediting a receivable of
$20.0 million owed by Grupo TMM to TFM, with the remaining balance of $44.0
being paid to 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.

         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. 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 through operating
leases.

         Net cash used in investing activities in 2000 was $59.8 million. In
2000, we made capital expenditures in an aggregate amount of $66.9 million.
Substantially all of these expenditures were for purchases of machinery and
equipment. Our capital expenditures were partially offset by sales of machinery
and equipment.

CASH FLOWS FROM FINANCING ACTIVITIES

         As of 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

                                      -54-
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.

         Cash used in financing activities in 2000 amounted to $99.4 million. In
September 2000, we issued $293.0 million principal amount of commercial paper
under our then existing commercial paper program, which is backed by an
irrevocable direct-pay letter of credit issued by Westdeutsche Landesbank
Girozentrale, S.A., New York Branch. The amount of the commercial paper program
was increased to $310.0 million in December 2000.

         The commercial paper was issued at a discount of $5.0 million from its
aggregate principal amount, which represented an average interest rate of
approximately 6.5%. The proceeds from the sale of the commercial paper were used
to prepay the $284.6 million principal amount which was outstanding under our
senior secured credit facilities. The deferred financing costs related to the
senior secured credit facilities were expensed on a one-time basis in 2000.

         To finance the acquisition by Grupo TFM of our shares and our
acquisition of certain railroad assets in connection with the privatization of
our rail lines in June 1997, we issued $150.0 million aggregate principal amount
of the 2007 senior notes and $443.5 million aggregate principal amount at
maturity of the 2009 debentures, both of which are unconditionally guaranteed by
Grupo TFM, and established our senior secured credit facilities with a syndicate
of financial institutions as lenders. The senior secured credit facilities
consisted of a $325.0 million senior term loan and a $150.0 million revolving
credit facility. The obligations under the senior secured credit facilities were
guaranteed by Grupo TFM and secured by substantially all of the assets of TFM
and Grupo TFM. The obligations under the senior secured credit facilities were
repaid in full with the proceeds from issuance of commercial paper under our
then existing commercial paper program, and the liens on our assets were
released at that time.

         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.

                                      -55-
CONTRACTUAL OBLIGATIONS

         The following table outlines our obligations for payments under our
indebtedness, capital leases and operating leases for the periods indicated
using balances as of December 31, 2002:

                     (Figures in thousands of U.S. Dollars)
INDEBTEDNESS(1)                         2003          2004           2005       THEREAFTER       TOTAL
          ------------                            ----          ----           ----       ----------       -----
Senior discount debentures due 2009.......     $   54,796    $    54,796    $   54,796    $   645,243    $   809,632
Commercial paper program..................          4,332        125,069             0              0        129,401
Term loan facility........................         23,553         40,337        38,835         37,320        140,046
Senior notes due 2007.....................         16,167         16,167        16,167        174,251        222,752
Senior notes due 2012.....................         23,659         23,659        23,659        310,126        381,104
Capital leases............................            298            298           298          1,248          2,142
                                               ----------    -----------    ----------    -----------    -----------
         TOTAL INDEBTEDNESS...............     $  122,805    $   260,326    $  133,755    $ 1,168,188     $1,685,077
                                               ==========    ===========    ==========    ===========    ===========
OPERATING LEASES(2)                     2003          2004           2005       THEREAFTER       TOTAL
          ----------------                        ----          ----           ----       ----------       -----
Locomotives...............................     $   28,720    $    28,720    $   28,720    $   379,291    $   465,451
Railcars..................................         32,830         18,064        12,504         70,239        133,637
                                               ----------    -----------    ----------    -----------    -----------
         TOTAL OPERATING LEASES...........     $   61,550    $    46,784    $   41,224    $   449,530    $   599,088
                                               ==========    ===========    ==========    ===========    ===========
-----------------
(1)  These amounts include principal and interest payments.

(2)  These amounts include the minimum lease payments.

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

         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:
REDEMPTION
YEAR                                       PRICE
----                                     ----------
2007...................................   106.250%
2008...................................   104.167%
2009...................................   102.083%
2010 and thereafter....................   100.000%
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 accrues on the 2009 debentures until June 15, 2002. The 2009 debentures
will mature on June 15, 2009. The discounted offering price of the 2009
debentures represents a fixed

                                      -56-
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:
SENIOR DISCOUNT
                                                 DEBENTURE
YEAR                                          REDEMPTION PRICE
----                                          ----------------
2002........................................      105.8750%
2003........................................      102.9375%
2004 and thereafter.........................      100.0000%
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.

         New bank facilities

         On September 19, 2000 we 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, we entered into two new 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 new 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.

                                      -57-
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. We used approximately $60.0 million of the proceeds of the new
bank facilities to retire our U.S.$310.0 million commercial paper program which
resulted in an overall reduction of our outstanding level of debt. As of
December 31, 2002, there was $122.0 million outstanding under the commercial
paper program and $128.0 million outstanding under the term loan facility.

         The credit agreements relating to our new 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 our new 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.

         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. As of December 31, 2002, we
were in compliance with these 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.

         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 with a written notification upon
three months notice.

                                      -58-
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.

         Sale of mexrail

         In May 2003, we sold 51.0% of our interest in Mexrail and its
wholly-owned subsidiary, the Texas Mexican Railway Company, to KCS for $32.6
million, leaving us with a 49.0% interest in Mexrail. The Mexrail stock sold
will 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 shall retain the right to repurchase all of the
shares from KCS at any time for an amount equal to the purchase price. Such
right shall be unconditional and may 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. Proceeds from the sale were re-invested
in TFM. 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.

         Grupo TFM Call option

         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. As a result of the
acquisition of the call option shares, TFM expects to achieve financial benefits
and reduce the Mexican government's ownership and involvement in its business.
TFM financed the purchase price for the call option shares 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 TFM by
the Mexican government as a result of its transfer of a redundant portion of its
track to the Mexican government, together with cash from TFM's operations.

         Mexican government's put option

         The Mexican government has the right to sell its 20.0% equity interest
in TFM by October 31, 2003 in a public offering. If a public offering of TFM
shares does not occur by that date, Grupo TFM will have the obligation 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% equity interest in TFM, indexed
to Mexican inflation. If Grupo TFM does not purchase the Mexican government's
TFM shares, the Mexican government may require Grupo TMM and KCS, or either
Grupo TMM or KCS alone, to purchase the TFM shares at such price and release
Grupo TFM from its obligation. There is no assurance that Grupo TFM, Grupo TMM
or KCS will have sufficient funds to acquire the Mexican government's interest.
See "Certain Recent Developments. Potential Sale by Grupo TMM of its Interest in
Grupo TFM."

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its Interest in Grupo TFM."

CAPITAL EXPENDITURES

         We made capital expenditures of $89.4 million, representing 12.5% of
our transportation revenues, in 2002. We made capital expenditures of $8.7
million, representing 5.2% of our transportation revenues, for the quarter ended
March 31, 2003. In 2002, our capital expenditures were $35.8 million primarily
for the rehabilitation of our

                                      -59-
route between Mexico City and Lazaro Cardenas, among other rail lines, $5.3
million for the construction of the Sanchez freight yard, $6.6 million for the
construction of the Monterrey Intermodal Terminal and $8.0 million for the
construction of the Toluca Intermodal Terminal. We expect to make capital
expenditures in each of 2003 and 2004 in an amount up to approximately $66.0
million and $75.0 million, respectively. These capital expenditures include the
expenses we expect to incur for the rehabilitation and improvement of our
secondary rail lines and the construction of new intermodal terminals near the
manufacturing plants of our automotive customers. 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

         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 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.

         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.

         We face significant competition from trucks and other rail carriers as
well as limited competition from the shipping industry in our freight
operations. 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. Under the proposed rules issued by the U.S. Department of
Transportation, it was expected that the U.S. border would have been opened to
Mexican carriers in 2002. However, in January 2003, a coalition of
environmental, consumer and labor groups brought legal action against the U.S.
Department of Transportation alleging that the proposed rules violated federal
environmental laws due to the failure of the U.S. Department of Transportation
to adequately review the impact on U.S. air quality once Mexican carriers were
allowed to transport beyond the 20-mile commercial zones along the U.S.-Mexico
border. In April 2003, the Ninth Circuit of the U.S. Court of Appeals in San
Francisco upheld a prior ruling which required the U.S. Department of
Transportation to perform an Environmental Impact Statement of the Mexican truck
plan and to certify compliance with the Clean Air Act requirements. The matter
has now been remanded to the U.S. Department of Transportation so that it may
prepare the required Environmental Impact Statement and ensure conformity with
the Clean Air Act. Since a key element of our business strategy is to recapture
market share lost to the trucking industry, our inability to successfully
convert traffic from truck to rail transport would materially impair our ability
to achieve our strategic objectives. 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."

                                      -60-
E. OFF-BALANCE SHEET ARRANGEMENTS

         Not applicable.

F.       TABULAR DISCLOSURE

         Not applicable.

G.       SAFE HARBOR

         Not applicable.

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:
NAME                                   PRINCIPAL OCCUPATION
---------------------------  -----------------------------------------------------------
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
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 TFM's board of directors is responsible for the management of
Grupo TFM. The members of the board of directors are elected annually.

                                      -61-
The members of the board of directors of Grupo TFM and their principal
occupations are as follows:
NAME                                   PRINCIPAL OCCUPATION
---------------------------  -----------------------------------------------------------
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......  Director and Chief Financial Officer of Grupo TMM
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.

                                      -62-
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 was elected as a member of the board of directors of Grupo
TFM in 1997 and also serves as a member of the Executive Committee and Executive
Finance Committee of TFM. He has served as Chief Financial Officer of Grupo TMM
since 1994, a director of Grupo TMM since 1992 and as Chief Financial Officer of
TFM and Grupo TFM since May 2003. He has also served in various other positions
with Grupo TMM since 1991. Mr. Marina previously served as 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.

                                      -63-
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:
NAME                                           TITLE
--------------------------------------    -------------------------------------------
Mario Mohar Ponce.....................    Chief Executive Officer
Jacinto Marina Cortes.................    Chief Financial Officer
Jorge Licon...........................    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
Federico Diaz Page....................    Vice President--Planning and Service Design
Ernesto G. Fernandez..................    Chief Mechanical Officer
Manuel V. Zulaica.....................    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
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 was elected as a member of the board of directors of Grupo
TFM in 1997 and also serves as a member of the Executive Committee and Executive
Finance Committee of TFM. He has served as Chief Financial Officer of Grupo TMM
since 1994, a director of Grupo TMM since 1992 and as Chief Financial Officer of
TFM and Grupo TFM since May 2003. He has also served in various other positions
with Grupo TMM since 1991. Mr. Marina previously served as 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.

JORGE LICON, CHIEF OPERATING OFFICER

         Mr. Licon joined us in November 1997. Prior to assuming his position as
Chief Operating Officer in January 1999, Mr. Licon received training in U.S.
railroad practices at KCSR and TFM. Mr. Licon has 11 years of experience as a
general manager with various Mexican companies, including Grupo Cifra, S.A. de
C.V. and Grupo San Isidro, S.A. de C.V.

                                      -64-
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 United States.
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
United States.

                                      -65-
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 United States. 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.

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.

MANUEL V. ZULAICA, CHIEF TRANSPORTATION OFFICER

         Mr. Zulaica joined us in May 2000. Mr. Zulaica has over 11 years of
experience in the railroad industry, having worked in various positions in the
United States, Canada and Mexico for the Canadian Pacific Railroad.

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.

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.

                                      -66-
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, 2002, the aggregate compensation TFM
and Grupo TFM paid to their directors, alternate directors and executive
officers for services in all capacities was approximately $5.0 million.

         We have established an annual bonus compensation program for our top
management, based on the performance results of TFM and the contribution of each
individual participant. The aggregate compensation disclosed above for 2002
reflects all bonuses paid under the program in 2002.

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, 2001 and 2002, we had accrued
$1.48 million and $0.78 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

         The Audit Committee of TFM and Grupo TFM was appointed by the board of
directors in 1998. The members of the Audit Committee are Javier Segovia
Serrano, a member of TFM's board of directors and President of Grupo TMM, Lydia
Velasco, certified public accountant, and Louis G. Van Horn, KCS' Vice President
and Comptroller. The Chief Executive Officer and the Chief Financial Officer of
TFM attend meetings of the Audit Committee by invitation. The Audit Committee
meets at least once per year. Its responsibilities include the following:

         -   Independent Public Accountants. Review and approve the external
             audit plan and fees, and significant items and developments in
             accounting and financial reporting.

         -   Internal Audit. Review the audits performed and significant issues,
             approve the internal audit plan and review the status of ongoing
             audits.

                                      -67-
-   Report of Management. Review management's report of financial
             results.

         In addition, the Audit Committee evaluates the performance and
independence of the independent accountants and the quality of the internal
audit. TFM and Grupo TFM do not have a remuneration committee.

D.       EMPLOYEES

         Effective in July 2001, our labor agreement covering 70.0% of our
workforce was renewed for a two-year term ending in 2003. 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. As of December 31,
2002 we had 3,371 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 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.
SERIES A SHARES               SERIES B SHARES                   TOTAL
                                        --------------------------   --------------------------    -------------------------
            SHAREHOLDER                   SHARES           PERCENT      SHARES          PERCENT        SHARES        PERCENT
            -----------                 -----------        -------   ------------       -------    -------------     -------
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%
                                        ===========        ======     ===========        =====     =============      =====
-68-
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.
                                      -69-
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:
SERIES A SHARES       SERIES B SHARES       SERIES L-2 SHARES            TOTAL
                                    -------------------  -------------------    -------------------    --------------------
SHAREHOLDER                          SHARES     PERCENT    SHARES    PERCENT     SHARES     PERCENT     SHARES      PERCENT
-----------                         ---------   -------  ---------   -------    ---------   -------    ----------   -------
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%
                                    =========    =====   =========    =====     =========    =====     ==========    =====
-----------------------------
(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. 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;

         -   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;

                                      -70-
-   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.

         See also "Certain Recent Developments. Potential Sale by Grupo TMM of
its Interest in Grupo TFM."

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.

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.

         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

                                      -71-
at an annual rate of $1,250,000. The management services agreement is terminable
by either party upon 60 days written notice.

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.

MEXRAIL STOCK PURCHASE AGREEMENT, OMNIBUS AGREEMENT AND SALE OF 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. The
Mexrail stock sold by TFM will 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 shall retain the right to
repurchase all of the shares from KCS at any time for an amount equal to the
purchase price. Such right shall be unconditional and may 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. Proceeds from the
sale were re-invested in TFM.

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.

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, 2002, TFM had a non-interest bearing receivable due from Grupo TFM
of $68.0 million, mainly due to the funding that TFM provided to Grupo TFM to
pay a portion of the purchase price of its TFM shares.

                                      -72-
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

         On September 25, 2002, the Mexican Magistrates Court of the First
District (the "Federal Court") issued a judgment in favor of TFM on a value
added tax 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 that 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's ruling. The Federal Court's ruling requires the fiscal authorities to
issue the VAT credit certificate only in the name of TFM. On December 6, 2002,
the upper chamber of the Fiscal Court again ruled against TFM. On January 8,
2003, TFM was officially notified of the new judgment of the Fiscal Court and on
January 29, 2003, TFM filed the appropriate appeal. On June 11, 2003, the
Federal Court overruled the Fiscal Court's December 6, 2002 decision. TFM is
waiting to receive the official judgment of the Federal Court and will evaluate
its implications, which could result in new legal proceedings. TFM continues to
believe it will prevail in the final resolution of the matter. In the event TFM
prevails, a third party who can establish that its right have been adversely and
improperly affected by the new ruling may seek to bring a claim, in a different
proceeding, against TFM. However, TFM does not believe that any third party's
rights would be improperly affected and believes that it would prevail in any
such action.

         The face value of the VAT certificate at issue is approximately $206.0
million, and the amount of any recovery will reflect adjustments for inflation
and accruals of interest at statutory rates since 1997, in accordance with the
legal codes applicable since that date.

         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 a
Mexican federal court. Such federal court has suspended the rulings issued by
the Ministry of Transportation until such court makes definitive rulings.

         In September 2001, Ferromex filed a civil lawsuit against us relating
to the payments that we and Ferromex are required to make to each other for
interline services and haulage and trackage rights. We believe that this legal
claim is without merit. On September 25, 2002, the third civil court of Mexico
City rendered its judgment in our favor. Ferromex subsequently appealed the
decision before an appellate court in Mexico. On January 15, 2003, the appellate
court also rendered judgment in our favor. On February 7, 2003, Ferromex
initiated an amparo proceeding before the appropriate federal court in Mexico,
requesting that such court review the appellate court decision. Such proceeding
is currently still in progress.

         In connection with the Ferromex claim, Ferromex temporarily prevented
us from using certain short trackage rights which we have over a portion of its
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. On March 13, 2002, the Ministry of Transportation issued a
ruling confirming

                                      -73-
our right to use the Celaya-Silao stretch of Ferromex track. Ferromex is
contesting such ruling through appropriate proceedings.

         We are a party to various other legal proceedings arising in the
ordinary course of business, the impact of which would not, either individually
or in the aggregate, in management's opinion, 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.

B.       PLAN OF DISTRIBUTION

         Not applicable.

C.       MARKETS

         The securities are not traded on any stock exchange or other regulated
market. We have applied to list the 2012 senior notes on the Luxembourg Stock
Exchange, but we cannot assure you that the listing will be approved.

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 annual 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

                                      -74-
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.

         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

                                      -75-
ordinary course of business; (b) granting of loans to third parties not in the
ordinary course of business; (c) acquisitions not in furtherance of the
corporate purposes of TFM and not in the ordinary course of business, if such
acquisitions have an aggregate value of more than $1,000,000; (d) the
cancellation or redemption of the Class III Shares; and (e) cancellation of the
registration of the shares issued by TFM in the National Registry of Securities
and Intermediaries or any other foreign securities exchange. Except as described
herein, the holders of Class III Shares have no voting rights. Class III Shares
are not entitled to preferential and accumulative dividends.

         All shareholders have a right to receive dividends and any surplus, in
the event of liquidation, in proportion to the number of fully paid shares owned
by such shareholder. With respect to further capital calls made by TFM,
shareholder liability is limited to each shareholder's capital contribution.

         Only shares representative of the variable portion of TFM capital stock
may be redeemed, provided that as a consequence of such redemption, (i) the
number of shareholders of TFM is not less than two or (ii) the amount of capital
stock is not reduced to less than the minimum established by Mexican law. If
neither of these prohibitions apply, the shareholder owning shares
representative of the variable portion of the capital stock may redeem all or
part of its shares at the lesser of (a) 95.0% of the value of such shares at the
Mexican stock exchange market or (b) the value of the shares pursuant to the
last balance sheet approved by the shareholders. The reimbursement of the
redeemed shares will become due on the day following the date of the next
general ordinary shareholders meeting which approves the financial information
of the fiscal year in which the redemption must take effect, pursuant to the
procedure authorized by such shareholders meeting.

         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.

                                      -76-
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.

         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.

                                      -77-
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 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.

                                      -78-
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.

         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.

                                      -79-
C.       MATERIAL CONTRACTS

         See "Item 5B. Liquidity and Capital Resources. Contractual Obligations"
for (i) a description of the indentures governing our debt securities and the
credit agreements governing our commercial paper program and term loan facility
and (ii) a description of the stock purchase agreement whereby we sold Mexrail
on April 15, 2003.

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

         -    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 the
Mexico's income tax law and regulations applicable on the date of this annual
report. All of these things are 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 United States;

         -    a corporation, partnership, or other entity created or organized
              in or under the laws of the United States, 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 United States 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, a natural person is a resident of
Mexico if he has established his home in Mexico, unless he has resided in
another country for more than 183 days, whether consecutive or not, during a
calendar year, and can demonstrate that he has become a resident of that country
for tax purposes. 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 or the effective location of its management in
Mexico. An individual of Mexican nationality is presumed to be a resident of
Mexico unless such person can demonstrate otherwise. 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 an individual or corporation that does not satisfy the
requirements to be considered a resident of Mexico for Mexican federal tax
purposes.

                                      -80-
The description of the U.S. federal income and Mexican tax laws set
forth below is based on the laws in force as of the date of this annual report
and is subject to any changes in applicable U.S. or Mexican tax laws. The
governments of the United States and Mexico ratified an income tax treaty and a
protocol (together the "Tax Treaty") which came into effect on January 1, 1994.
The United States and Mexico have also entered into an agreement that covers the
exchange of information with respect to tax matters.

         Each prospective holder of the securities should consult his or her 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 the securities.

         PAYMENTS OF INTEREST

         Under Mexico's income tax law, payments of interest with respect to
each of the securities to non-resident U.S. holders (which is deemed to include
any amounts paid by TFM in excess of the original issue price) will be subject
to Mexican withholding tax at a rate of 4.9%, if, as expected, 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 in force a
              treaty for the avoidance of double taxation;

         -    we duly comply with the information requirements established in
              the general rules issued by the Ministry of Finance and Public
              Credit for those purposes; 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.

         If any of the above-mentioned requirements is not met, the Mexican
withholding tax will be 10.0% and in certain cases 34.0%.

         The Ministry of Finance and Public Credit has not yet issued any
specific rules establishing the information requirements for the application of
the 4.9% withholding tax rate. However, the Ministry of Finance and Public
Credit has taken the position that these requirements are satisfied by meeting
the requirements of Rule 3.25.15, which is in force until March 31, 2004. Rule
3.25.15 currently requires, among other things, that TFM: (1) timely files with
the Ministry of Finance and Public Credit evidence of the registration of the
securities with the Special Section of the National Registry of Securities
maintained by Mexico's National Banking and Securities Commission; (2) timely
files certain information related to the issuance of the securities; (3) timely
files confirmation that neither (x) shareholders of TFM that own, directly or
indirectly, individually or collectively with other related parties, more than
10.0% of the voting stock of the equity of TFM nor (y) entities in which 20.0%
or more of whose stock is owned directly or indirectly, individually or
collectively, by parties related to TFM, directly or indirectly, individually or
collectively, the effective beneficiaries of more than 5.0% of the aggregate
amount of each interest payment, and (4) maintains records evidencing compliance
with (3) above. We expect that this rule will be extended or that a
substantially similar successor of such rule will be published; however we can
not assure you that this will happen. In any case, we expect to satisfy the
information requirements, and accordingly, expect that the 4.9% withholding tax
rate will apply.

                                      -81-
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% in the event that:

         (i)      the securities are considered 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 provided that:

         -    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 the securities by TFM is not subject to Mexican withholding tax.

         ADDITIONAL AMOUNTS

         Pursuant to the applicable indenture, but subject to certain exceptions
and limitations, all payments on the securities will be made free and clear of
any withholding taxes imposed by Mexico. We will furnish to the Trustee 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 the 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
the 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.

                                      -82-
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 in respect to a security, if any, on account of Mexican withholding
taxes, 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 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 debentures. 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 interest paid 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 situations.

         ORIGINAL ISSUE DISCOUNT

         Under the Internal Revenue Code, if the sum of all the payments a
holder receives from a debenture exceeds the debenture's 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 U.S.
holders will generally have to include original issue discount in their income
as ordinary income. Original issue discount is not included in income as a lump
sum, but as it accrues, which is calculated 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 original issue discount
interest income before the corresponding cash payment is actually made.
Regardless of when the U.S. holder actually receives the cash representing the
original issue discount income, such holder must include the amount of cash in
such holder's income as it has been calculated to accrue assuming a constant
yield to maturity.

         Since the debentures were issued with original issue discount, U.S.
holders will be required to include original issue discount in their gross
income as described below.

         A debenture's stated redemption price at maturity will equal the sum of
all payments thereon, minus any part of the payments that are "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 will not be paid on the debentures prior to the year
2002, it 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 will have
substantial original issue discount.

         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:

                                      -83-
Step 1)  Determine the number of days between interest accrual periods
                  (365 for annual; 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)  To calculate how much original issue discount will accrue
                  during a period, multiply the adjusted issue price of the
                  debenture (as described below) by the debenture's yield to
                  maturity (see Step 2 above).

         Step 4)  To calculate the "daily portion" of original issue
                  discount, 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 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 notes purchased at a
premium or bearing market discount in the hands of the 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 security for less than its principal
amount, 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.

                                      -84-
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 2007 senior note, 2009 debenture or 2012
senior note 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 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)

         AMORTIZABLE BOND PREMIUM

         If a U.S. holder purchases a security for more than the amount payable
at maturity (or on an earlier call 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 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 United States 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 United States or made by a paying agent, broker or
other intermediary in the United States were subject to a backup withholding tax
at a rate of 30.0% in 2002 and will be subject to the same rate in 2003 (and at
a lower rate in subsequent years) if the U.S. holder fails to furnish such
holder's taxpayer

                                      -85-
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.

B.       DIVIDEND AND PAYING AGENTS

         Not applicable.

F.       STATEMENT BY EXPERTS

         Not applicable.

H.       DOCUMENTS ON DISPLAY

I.       SUBSIDIARY INFORMATION

         Not applicable.

         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.

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 of the financial statements.

                                      -86-
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, 2002:
FIXED RATE         VARIABLE RATE
MATURITY                                           DEBT(1)             DEBT(2)
-----------------------------------------        ----------         -------------
                                                    (IN THOUSANDS OF DOLLARS)
2003.....................................        $         0         $    18,286
2004.....................................                  0             158,572
2005.....................................                  0              36,571
2006 and thereafter......................        $   773,500              36,571
                                                 -----------         -----------
  Total..................................        $   773,500         $   250,000
                                                 ===========         ===========
  Fair Value.............................        $   747,284         $   250,000
                                                 ===========         ===========
-------------
    (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, 2002 was approximately 3.61% for the
         commercial paper program and 4.67% for the term loan facility.

INTEREST RATE AGREEMENTS

         We have entered into some types of interest rate contracts to manage
our interest rate risk. We used interest rate swaps to reduce the potential
impact of increases in our borrowings under our senior secured credit
facilities. 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 United States. 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, 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 monetary assets and liabilities denominated in
Pesos of Ps. 1,725.0 million and Ps. 334.0 million, respectively. At December
31, 2000, we had Peso-denominated monetary assets and liabilities of Ps. 478.7
million and Ps. 219.4 million, respectively. At December 31, 2002, 2001 and
2000, the applicable Peso-Dollar exchange rate was Ps. 10.45, Ps. 9.18 and Ps.
9.61 per U.S. Dollar, respectively.

         As of December 31, 2002, we had one Peso call option outstanding in the
notional amount of $1.7 million, based on an average exchange rate of
approximately Ps. 11.0 per Dollar. This option expired on May 29, 2003.

         Additionally, as of December 31, 2002, we had one purchase forward
contract and one sale forward contract outstanding in the aggregate notional
amount of $10.0 million. The purchase forward contract was based on an exchange
rate of Ps. 9.77 per Dollar and the sale forward contract was based on an
exchange rate of Ps. 10.56 per Dollar. These forward contracts expired on
February 13, 2003.

                                      -87-
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. In 2002, we entered into swap fuel
contracts covering approximately 10,000,000 gallons at the average price of
$0.68 per gallon. These contracts covered almost 16.0% of our estimated fuel
purchase. 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 only recorded a benefit of $1.0
million at December 31, 2002.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

                                    PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

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

         In the second quarter of 2002, we completed a solicitation of consents
of holders of our 2007 senior notes and our 2009 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 our 2007 senior notes and 2009 debentures were
issued. Such changes included (i) a one-time waiver of the limitation on
restricted payments covenants in the respective indentures governing our 2007
senior notes and our 2009 debentures to allow us to purchase the equity interest
of the Mexican government in our parent company, Grupo TFM; (ii) elimination of
the "basket" that allowed TFM to incur $475.0 million of indebtedness without
regard to the interest coverage ratio and insertion in its place of a $75.0
million "basket" that TFM may use to incur secured indebtedness for specified
purposes; and (iii) setting of the accrued "basket" available to TFM for making
restricted payments at zero, with retroactive effect to April 1, 2002.

         We obtained the requisite consents to allow us to purchase the equity
interest of the Mexican government in our parent company, Grupo TFM, 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.

         In the consent solicitation, we received consents from holders
representing a majority of the aggregate principal amount outstanding of each of
the 2007 senior notes and the 2009 debentures, as required to amend each
applicable indenture. Supplemental indentures setting forth the proposed
amendment have been executed with respect to each indenture and the cash fee was
paid to consenting holders on June 13, 2002.

         Holders delivering their consents in the consent solicitation were
offered a cash fee of $30.00 for each $1,000 principal amount of existing notes
in respect of which they delivered a valid and unrevoked consent. We obtained
this financing through the issuance of the 2012 senior notes.

E.       USE OF PROCEEDS

         Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

         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 such term is defined in Rules 13a-15(c)
and 15d-15(c) under the Exchange Act) within 90 days prior to the date of this
annual report. Based on that evaluation, such officers concluded that our
disclosure controls and procedures are effective to ensure that

                                      -88-
information required to be disclosed in this annual report is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.

         There were no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of the evaluation. No significant deficiencies and material weaknesses were
identified that required corrective actions.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

         Not applicable.

ITEM 16B. CODE OF ETHICS

         Not applicable.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Not applicable.

                                    PART III

ITEM 17. FINANCIAL STATEMENTS

         Not applicable.

ITEM 18. FINANCIAL STATEMENTS

         See pages F-1 through F-52.

                                      -89-
ITEM 19. EXHIBITS

Documents filed as exhibits to this annual 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.

   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.

   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).

                                      -90-
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.

                                      -91-
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.

   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.

   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).

                                      -92-
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 21, 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. 333-99075).

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

*  Filed herewith.

                                      -93-
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:   Finance Director

Date: June 30, 2003

-------------------------
*Print the name and title of the signing officer under this signature.
CERTIFICATION

         I, Mario Mohar Ponce, certify that:

         1.       I have reviewed this annual report on Form 20-F of TFM, S.A.
de C.V. and Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.

         2.       Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report.

         3.       Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

         4.       The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                  a)       designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.

         5.       The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent function):

                  a)       all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in internal
controls; and

                  b)       any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.

         6.       The registrant's other certifying officers and I have
indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: June 30, 2003

                                        By:    /s/ Mario Mohar Ponce
                                               ---------------------------------
                                               Mario Mohar Ponce
                                               Chief Executive Officer
CERTIFICATION

         I, Jacinto Marina Cortes, certify that:

         1.       I have reviewed this annual report on Form 20-F of TFM, S.A.
de C.V. and Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.

         2.       Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report.

         3.       Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report.

         4.       The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

                  a)       designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

                  b)       evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and

                  c)       presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.

         5.       The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent function):

                  a)       all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in internal
controls; and

                  b)       any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls.

         6.       The registrant's other certifying officers and I have
indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: June 30, 2003

                                        By:      /s/ Jacinto Marina Cortes
                                                 -------------------------------
                                                 Jacinto Marina Cortes
                                                 Chief Financial Officer
INDEX

                                TFM, S.A. DE C.V.

             AUDITED, COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
CONTENTS                                                                                             PAGE
--------                                                                                             ----
Report of Independent Accountants................................................................    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-7
GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

             AUDITED, COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
CONTENTS                                                                                             PAGE
--------                                                                                             ----
Report of Independent Accountants................................................................    F-27
Combined and Consolidated Balance Sheets.........................................................    F-28
Combined and Consolidated Statements of Income...................................................    F-29
Combined and Consolidated Statements of Changes in Stockholders' Equity..........................    F-30
Combined and Consolidated Statements of Cash Flows...............................................    F-31
Notes to the Combined and Consolidated Financial Statements......................................    F-32
TFM, S.A. DE C.V.

                        REPORT OF INDEPENDENT ACCOUNTANTS

Mexico City, February 28, 2003

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, 2002 and 2001,
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, 2002, 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 Auditing Standards Generally Accepted in the United States of
America. 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
Accounting 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, 2002 and 2001, and the combined and consolidated results of their
operations, the changes in stockholders' equity and their cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
International Accounting Standards.

         International Accounting Standards differ in certain material respects
from Accounting Principles Generally Accepted in the United States of America.
The application of the latter would have affected the determination of the
combined and consolidated net income for each of the three years in the period
ended December 31, 2002, and the determination of combined and consolidated
stockholders' equity and combined and consolidated financial position as of
December 31, 2002 and 2001, to the extent summarized in Note 11 to the financial
statements.

PricewaterhouseCoopers

Alberto Del Castillo V. Vilchis
Audit Partner

                                      F-2
TFM, S.A. DE C.V.

                    COMBINED AND CONSOLIDATED BALANCE SHEETS
                                    (NOTE 1)
                      (amounts in thousands of US dollars)
DECEMBER 31,
                                                                                                       ------------
                                                                                                   2001            2002
                                                                                                   ----            ----
ASSETS
Current assets:
     Cash and cash equivalents .............................................................   $     40,578    $     30,221
     Accounts receivable net of allowance for doubtful accounts of $3,568 in 2001 and $3,913
         in 2002 ...........................................................................        103,562          90,596
     Amounts due from related parties (Note 7) .............................................         43,548           5,316
     Other accounts receivable -  Net ......................................................         69,713         106,628
     Materials and supplies ................................................................         23,329          20,261
     Other current assets ..................................................................         10,030          12,200
                                                                                               ------------    ------------
         Total current assets ..............................................................        290,760         265,222

Due from Mexican Government (Note 3) .......................................................         81,892
Long-term account receivable ...............................................................                          1,388
Concession rights and related assets - Net (Note 3) ........................................      1,205,887       1,164,301
Property, machinery and equipment - Net (Note 4) ...........................................        568,755         609,367
Long-term receivable from Grupo TFM (Note 7) ...............................................        661,275         661,478
Investment held for operating purposes (Note 2i.) ..........................................          6,166           7,435
Deferred financing costs ...................................................................         11,647          34,281
Other assets ...............................................................................            449             361
Deferred income taxes (Note 9) .............................................................        129,211          97,178
                                                                                               ------------    ------------
         Total assets ......................................................................   $  2,956,042    $  2,841,011
                                                                                               ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term liabilities:
     Commercial paper (Note 5) .............................................................   $    264,638
     Current portion of long-term debt (Note 5) ............................................                   $     18,286
     Current portion of capital lease obligations (Note 10) ................................            298             267
     Amounts owed to related parties (Note 7) ..............................................         10,767           9,175
     Accounts payable and accrued expenses .................................................        105,750         119,564
                                                                                               ------------    ------------
         Total short-term liabilities ......................................................        381,453         147,292
                                                                                               ------------    ------------
Long-term portion of capital lease obligations (Note 10) ...................................          2,137           1,875
Long-term debt (Note 5) ....................................................................        570,938       1,002,677
Other long-term liabilities ................................................................         21,551          40,735
                                                                                               ------------    ------------
         Total long-term liabilities .......................................................        594,626       1,045,287
                                                                                               ------------    ------------
         Total liabilities .................................................................        976,079       1,192,579
                                                                                               ------------    ------------
Minority interest (Note 2o.) ...............................................................                            (84)
                                                                                                               ------------
Commitments and contingencies (Note 10)

Subsequent events (Note 12)

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 ....................................................         22,390         (41,952)
Treasury shares ............................................................................                       (256,130)
Retained earnings ..........................................................................        198,691         187,716
                                                                                               ------------    ------------
         Total stockholders' equity ........................................................      1,979,963       1,648,516
                                                                                               ------------    ------------
         Total liabilities and stockholders' equity ........................................   $  2,956,042    $  2,841,011
                                                                                               ============    ============
The accompanying notes are an integral part of these combined and consolidated
                              financial statements.

                                      F-3
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)
YEAR ENDED DECEMBER 31,
                                                                       ----------------------
                                                                  2000          2001          2002
                                                                  ----          ----          ----
Transportation revenues ....................................   $  695,425    $  720,627    $  712,140
                                                               ----------    ----------    ----------

Operating expenses:
     Salaries, wages and employee benefits .................      111,790       128,845       124,413
     Purchased services ....................................      138,453       147,015       163,835
     Fuel, material and supplies ...........................       74,203        68,717        58,594
     Other costs ...........................................      129,497       147,578       129,428
     Depreciation and amortization .........................       76,626        78,345        81,401
                                                               ----------    ----------    ----------

          Total operating expenses .........................      530,569       570,500       557,671
                                                               ----------    ----------    ----------

Operating income ...........................................      164,856       150,127       154,469
                                                               ----------    ----------    ----------

Other (expenses) income - Net ..............................      (22,889)       34,257       (19,614)
                                                               ----------    ----------    ----------

Interest income ............................................        2,234         4,510         4,974
Interest expense ...........................................     (109,736)      (87,009)     (101,722)
Exchange (loss) gain - Net .................................       (1,435)        2,819       (17,508)
                                                               ----------    ----------    ----------

Net comprehensive financing cost ...........................     (108,937)      (79,680)     (114,256)
                                                               ----------    ----------    ----------

Income before provision for deferred income taxes ..........       33,030       104,704        20,599

Deferred income tax benefit (expense) (Note 9) .............       17,784        (2,550)      (32,033)
                                                               ----------    ----------    ----------

Income (loss) before minority interest .....................       50,814       102,154       (11,434)

Minority interest ..........................................                                       84
                                                               ----------    ----------    ----------

Net income (loss) for the year .............................   $   50,814    $  102,154    ($  11,350)
                                                               ==========    ==========    ==========

Net income (loss) for the year per share (Note 2p.) ........   $   0.0367    $   0.0738    ($  0.0082)
                                                               ==========    ==========    ==========
The accompanying notes are an integral part of these combined
                     and consolidated financial statements.

                                      F-4
TFM, S.A. DE C.V.

                 COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES
                   IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
                                 (NOTES 1 AND 8)
                      (amounts in thousands of US dollars)
EFFECT ON
                                                               PURCHASE OF
                                                   COMMON       SUBSIDIARY      TREASURY        RETAINED
                                                    STOCK         SHARES         SHARES         EARNINGS        TOTAL
                                                ------------      ------         ------         --------        -----
Balance at December 31, 1999 ................   $ 1,758,882    $    22,390                    $    45,723    $ 1,826,995
Net income for the year .....................                                                      50,814         50,814
                                                -----------    -----------                    -----------    -----------
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
                                                ===========    ===========    ============    ===========    ===========
The accompanying notes are an integral part of these combined
                     and consolidated financial statements.

                                      F-5
TFM, S.A. DE C.V.

               COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (NOTE 1)
                      (amounts in thousands of US dollars)
YEAR ENDED DECEMBER 31,
                                                                                             -----------------------
                                                                                        2000          2001          2002
                                                                                        ----          ----          ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year ...................................................   $   50,814    $  102,154    ($  11,350)
                                                                                     ----------    ----------    ----------
Adjustments to reconcile net income (loss) to net cash provided
     by operating activities:
     Depreciation and amortization ...............................................       76,626        78,345        81,401
     Amortization of discount on senior secured debentures and
         commercial paper ........................................................       45,665        49,408        23,158
     Deferred income tax (benefit) expense .......................................      (17,784)        2,550        32,033
     Provision for doubtful accounts .............................................        1,865          (247)          345
     Amortization of deferred financing costs ....................................       14,307         3,498         5,140
     Minority interest ...........................................................                                      (84)
     Loss on sale of property, machinery and equipment - Net .....................       23,203         7,585         6,897
     Gain on transfer of concession rights - Net .................................                    (60,744)
     Changes in assets and liabilities:
          Accounts receivable ....................................................      (34,277)      (17,450)       12,621
          Long-term receivable from Grupo TFM ....................................           11           (38)         (203)
          Other accounts receivable ..............................................       (4,132)      (16,266)      (36,915)
          Materials and supplies .................................................       (3,030)        1,269         3,068
          Other current assets ...................................................         (821)       (1,084)       (2,170)
          Amounts due to related parties .........................................           15       (42,109)        8,311
          Accounts payable and accrued expenses ..................................       21,936        11,909        13,814
          Other non-current assets and long-term liabilities .....................        2,303         1,272       (10,816)
                                                                                     ----------    ----------    ----------
              Total adjustments ..................................................      125,887        17,898       136,600
                                                                                     ----------    ----------    ----------
Net cash provided by operating activities ........................................      176,701       120,052       125,250
                                                                                     ----------    ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Mexrail, Inc. ......................................................                                  (44,000)
Sale of property, machinery and equipment ........................................        7,153         2,012           642
Acquisition of property, machinery and equipment .................................      (66,918)      (85,245)      (89,355)
Acquisition of treasury shares ...................................................                                 (162,575)
                                                                                     ----------    ----------    ----------
Net cash used in investing activities ............................................      (59,765)      (83,233)     (295,288)
                                                                                     ----------    ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under commercial paper ..................................................                    (25,156)     (340,000)
Repayments for debt ..............................................................      (15,074)
Proceeds from commercial paper ...................................................      280,662                     196,738
Proceeds from senior notes .......................................................                                  175,241
Proceeds from term loan facility .................................................                                  128,000
Principal payment of senior secured credit facility ..............................     (269,769)
Proceeds from revolving credit facility ..........................................       15,102
Principal payments under capital lease obligations ...............................      (10,248)       (4,227)         (298)
Payments under revolving credit facility .........................................     (100,100)
                                                                                     ----------    ----------    ----------
Net cash (used in) provided by financing activities ..............................      (99,427)      (29,383)      159,681
                                                                                     ----------    ----------    ----------
Increase (decrease) in cash and cash equivalents .................................       17,509         7,436       (10,357)
Cash and cash equivalents:
     Beginning of the year .......................................................       15,633        33,142        40,578
                                                                                     ----------    ----------    ----------
     End of the year .............................................................   $   33,142    $   40,578    $   30,221
                                                                                     ==========    ==========    ==========

SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest ...........................................   $   53,564    $   28,779    $   58,525
                                                                                     ==========    ==========    ==========

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

                                      F-6
TFM, S.A. DE C.V.

           NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
          (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 2,641 (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 70% 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. ("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 price was paid by
crediting an account receivable from related parties amounting to $20,000, and
the remaining balance of $44,000, was paid in cash. As a result, Mexrail, 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. ("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 acquired through the privatization
previously transferred by TFM. Arrendadora TFM is a subsidiary of TFM.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         TFM and subsidiaries prepare their financial statements in accordance
with International Accounting Standards ("IAS") 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 11. The most
significant accounting policies are described below.

                                      F-7
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, 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 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.

         d. 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 or market.

         e. 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.

         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.

                  iv.      Capital lease obligations assumed.

         f. 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).

                                      F-8
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).

         g. FOREIGN CURRENCY POSITION

         At December 31, 2002 TFM had monetary assets and liabilities
denominated in Mexican pesos of Ps1,292 million and Ps414 million (Ps1,725
million and Ps334 million, at December 31, 2001), respectively. At December 31,
2001 and 2002 the exchange rate was Ps9.18 and Ps10.45 per US dollar,
respectively. At February 28, 2003, date of issuance of these combined and
consolidated financial statements, the exchange rate was Ps10.86 per US dollar.

         h. DERIVATIVE FINANCIAL INSTRUMENTS

         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.

         i. INVESTMENT HELD FOR OPERATING PURPOSES

         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, 2000,
2001 and 2002, the equity in the loss (income) of the Mexico City rail terminal
amounted to $19, $915 and ($1,269), respectively and is included in other
(expenses) income - net in the statements of income.

         j. DEFERRED FINANCING COSTS

         Includes fees and other related expenses paid by the Company to obtain
long-term debt (see Note 5). These deferred financing costs are amortized by the
effective interest method during the outstanding period of such long-term debt.

         k. DEFERRED INCOME TAX

         Deferred income tax is determined following interperiod allocation
procedures under the liability method.

         Under this method the Company is required to make provision for
deferred income taxes on the tax indexation of certain-non-current assets and,
in relation to an acquisition, on the difference between the acquisition cost of
the net assets acquired and their tax base.

         l. 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, 2001 and 2002, the
Company had a provision of $1,478 and $778, respectively. Other compensations
based on length of service to which employees may be entitled in the event of
dismissal or death, in accordance with the Mexican Federal Law, are charged to
the statement of income in the year in which they become payable.

         m. REVENUE RECOGNITION

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

         n. INTANGIBLE AND LONG-LIVED ASSETS

         The carrying value of intangible assets and long-lived assets are
periodically reviewed by the Company and impairments are recognized when the
expected future operating cash flows, undiscounted and without interest charges,
derived from such intangible assets and long-lived assets are less than their
carrying value.

                                      F-9
o. MINORITY INTEREST

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

         p. NET INCOME PER SHARE

         Net income 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, 2000, 2001 and 2002 was
1,383,987,505.

         q. CONCENTRATION OF RISK

         Over 23% 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 an allowance for doubtful
accounts.

         r. USE OF ESTIMATES

         The preparation of the 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.

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.

         Concession rights and related assets are summarized as follows.
DECEMBER 31,
                                                             ------------            ESTIMATED USEFUL
                                                         2001            2002          LIVES (YEARS)
                                                         ----            ----        ----------------
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 .........................       (215,795)       (257,381)
                                                     ------------    ------------
Concession rights and related assets - Net .......   $  1,205,887    $  1,164,301
                                                     ============    ============
Amortization of concession rights was $39.4 million in 2000, $38.9
million in 2001 and $38.6 million in 2002.

         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

                                      F-10
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) income - net in the statement of income.

         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, Edo. Mex. 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 by FNM under capital lease arrangements (see
Note 10). Legal title to the purchased assets was transferred TFM at that time:
DECEMBER 31,
                                                           ------------        ESTIMATED USEFUL
                                                        2001          2002      LIVES (YEARS)
                                                        ----          ----     ----------------
Locomotives ......................................   $  176,647    $  176,456         14
Freight cars .....................................      105,921        98,622       12-16
Machinery of workshop ............................       17,111        17,515          8
Machinery of road ................................       28,233        30,906         14
Furniture and equipment ..........................      268,198       318,677        1-15
Buildings ........................................        6,697         7,168         20
Other ............................................       67,081        77,192         8
                                                     ----------    ----------
                                                        669,888       726,536
Less accumulated depreciation and amortization ...     (159,430)     (199,246)
                                                     ----------    ----------
                                                        510,458       527,290
Land .............................................       37,538        37,607
Construction in progress .........................       20,759        44,470
                                                     ----------    ----------
                                                     $  568,755    $  609,367
                                                     ==========    ==========
Depreciation of property, machinery and equipment was $37.2 million in
2000, $39.4 million in 2001 and $42.8 million in 2002.

                                      F-11
NOTE 5 - FINANCING:

         Financing is summarized as follows:
DECEMBER 31,
                                                                    ------------
                                                                  2001         2002
                                                                  ----         ----
SHORT-TERM DEBT:
Commercial paper (1) .......................................   $  265,000
Less- Discount on commercial paper .........................         (362)
                                                               ----------   ----------
                                                               $  264,638   $        -
                                                               ==========   ==========
CURRENT PORTION OF LONG-TERM DEBT:
Term loan facility (6) .....................................                $   18,286
                                                                            ==========
LONG-TERM DEBT:
Senior notes due 2007 (2) ..................................   $  150,000   $  150,000
Senior discount debentures (3) .............................      443,501      443,501
Senior notes due 2012 (4) ..................................                   180,000
Commercial paper (5) .......................................                   122,000
Term loan facility (6) .....................................                   109,714
                                                               ----------   ----------
                                                               $  593,501   $1,005,215
Less- discount on senior discount debentures, senior
    notes and commercial paper .............................      (22,563)      (2,538)
                                                               ----------   ----------
                                                               $  570,938   $1,002,677
                                                               ==========   ==========
(1)      COMMERCIAL PAPER

         On September 17, 2002, the total amount of the 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 Company repaid the remaining $60 million of
indebtedness outstanding under the former commercial program. See (5) below.

         (2)      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, 2000, 2001 and 2002.

         (3)      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 will be
payable thereon prior to June 15, 2002. The SDD will mature on June 15, 2009.
The price of the SDD represents a yield to maturity of 11.75%, fixed rate,
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 the
following redemption prices (expressed in percentages of principal amount at
maturity), plus accrued and unpaid interest, if any. The unamortized discount at
December 31, 2001 amounted to $22,563.
SENIOR DISCOUNT
                                                            DEBENTURE
YEAR                                                    REDEMPTION PRICE
----                                                    ----------------
2003.................................................       105.8750%
2003.................................................       102.9375%
2004 and thereafter..................................       100.0000%
F-12
Interest expense related with the SDD amounted $42,608, $47,763 and
$53,406 during 2000, 2001 and 2002, respectively.

         (4)      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 for 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 an 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, at any time in the event of certain changes in Mexican tax
law. 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 unamortized discount
at December 31, 2002 amounted to $2,376.

         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, for the year ended December 31, 2002.

         According to the refinancing of the commercial paper program due in
September, 2002, the Company entered into two new bank facilities as follows:

         (5)       COMMERCIAL PAPER

         The commercial paper program consists of a two-year facility in the
amount of $122,000, which is supported by a letter of credit issued under the
bank facility. The 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 commercial paper facility rank at least pari passu with the
other senior unsecured indebtedness. The unamortized discount at December 31,
2002 amounted to $162.

         (6)      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.

         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 asset sales, with which the Company and subsidiaries were in
compliance at December 31, 2002.

                                      F-13
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. TFM's fuel hedging program covered
approximately 25% of estimated fuel purchases. 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.

         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, 2001, the Company had eight Mexican peso call
options outstanding in the notional amount of $10 million each one, based on the
exchange rate of Ps9.973 per dollar. These options expired during 2002.

         As of December 31, 2002, the Company had one Mexican peso option
outstanding in the notional amount of $1.7 million based on the average exchange
rate of Ps11.0 per dollar. These options will expire 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, 2002.

         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, 2001 was $138,000 and
$385,845 and at December 31, 2002 was $140,625 and $427,334, respectively. The
related fair value of the senior notes due 2012 at December 31, 2002, was
$179,325. The carrying amount of commercial paper and term loan facility
approximates fair value due to their variable rates.

NOTE 7 - BALANCES AND TRANSACTIONS WITH SHAREHOLDERS AND RELATED PARTIES:
DECEMBER 31,
                                                                    ------------
                                                                  2001       2002
                                                                  ----       ----
ACCOUNTS RECEIVABLE:
Grupo TFM ..................................................   $  40,820
Other Grupo TMM subsidiaries ...............................       2,728   $   5,316
                                                               ---------   ---------
                                                               $  43,548   $   5,316
                                                               =========   =========
ACCOUNTS PAYABLE:
KCS ........................................................   $   3,284   $   1,222
Terminal Ferroviaria del Valle de Mexico, S.A. de C.V. .....       2,308       3,479
Other Grupo TMM subsidiaries ...............................       5,175       4,474
                                                               ---------   ---------
                                                               $  10,767   $   9,175
                                                               =========   =========
F-14
The most important transactions with related parties are summarized as
follows:
DECEMBER 31,
                                           ------------
                                 2000          2001          2002
                                 ----          ----          ----
Transportation revenues ...    $   3,410     $   3,434     $   7,645
                              ==========    ==========    ==========
Management services .......   ($   2,500)   ($   2,500)   ($   2,500)
                              ==========    ==========    ==========
Other expenses ............   ($   5,262)   ($   9,501)   ($  11,634)
                              ==========    ==========    ==========
TRANSACTIONS WITH SHAREHOLDERS

                  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 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.

                  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, 2001 and 2002, TFM has a non-interest bearing receivable from Grupo
TFM of $67,837 and $68,040, 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.

                  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
reimbursed for its costs and expenses incurred in the performance of such
services.

                                      F-15
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) $2,500,000 paid in nine equal monthly installments beginning in April 2002,
as compensation for services rendered between January 1, 1999 and December 31,
2000; (2) and 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 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, 2002, the capital stock of TFM is represented by
1,383,988 (thousands) shares as shown below:
NUMBER                   NUMBER                    NUMBER
SHAREHOLDER                        AMOUNT     (THOUSANDS)    AMOUNT     (THOUSANDS)    AMOUNT     (THOUSANDS)
-----------                        ------     ----------     ------     -----------    ------     -----------
Grupo TFM (Class I) ..........   $  457,485    359,975     $  439,545    345,858     $  897,030      705,833
Grupo TFM (Class II) .........      260,139    204,692        249,937    196,665        510,076      401,357
Government (Class III) .......      179,406    141,167        172,370    135,631        351,776      276,798
                                 ----------   --------     ----------   --------     ----------   ----------
Total ........................   $  897,030    705,834     $  861,852    678,154     $1,758,882    1,383,988
                                 ==========   ========     ==========   ========     ==========   ==========
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

                                      F-16
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.

         The Government has retained a 20% interest in TFM 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 Note 3).

         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 annul
Grupo TFM's Ordinary Stockholders' Meeting held on December 31, 2001. As a
consequence the Unanimous 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% non-voting interest in Grupo TFM (see
Note 1).

         Dividends paid are not subject to income tax if paid from the Net Tax
Profit Account. Any excess over this account is subject to a tax equivalent to
51.52%, 49.25% or 47.06% depending on whether paid in 2003, 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 - 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.

         TFM and its subsidiaries had combined losses for income for tax
purposes of $140,626, $56,536 and $396,884 for the years ended December 31,
2000, 2001 and 2002, 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 (benefit) expense for income tax (credited) charged to income was
as follows:
YEAR ENDED DECEMBER 31,
                                                  -----------------------
                                              2000          2001         2002
                                              ----          ----         ----
Current income tax .....................   $        -    $       79   $        -
Deferred income tax (benefit) expense ..      (17,784)        2,471       32,033
                                           ----------    ----------   ----------
Net income tax (benefit) expense .......   $  (17,784)   $    2,550   $   32,033
                                           ==========    ==========   ==========
F-17
Reconciliation of the income tax expense based on the statutory income
tax rate to recorded income tax (benefit) expense is shown as follows.
YEAR ENDED DECEMBER 31,
                                                                  -----------------------
                                                             2000          2001          2002
                                                             ----          ----          ----
Income before income tax ..............................   $   33,030    $  104,704    $   20,599
                                                          ==========    ==========    ==========

Income tax at 35% .....................................   $   11,561    $   36,646    $    7,210
(Decrease) increase resulting from:
     Effects of inflationary components ...............       (2,058)      (12,613)        8,635
     Effects of inflation on tax loss carryforwards ...      (28,599)      (25,007)       12,362
     Non-deductible expenses ..........................        1,299           965         2,128
Change in tax rate from 35% to 32% ....................                                   (1,973)
Other - Net ...........................................           13         2,480         3,671
                                                          ----------    ----------    ----------
Net deferred income tax (benefit) expense .............   ($  17,784)   $    2,471    $   32,033
                                                          ==========    ==========    ==========
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 2003 to
32% in 2005.

         The components of deferred tax assets and (liabilities) are comprised
of the following:
DECEMBER 31,
                                              ------------
                                          2001            2002
                                          ----            ----
Tax-loss carryforwards ............   $    269,260    $    365,871
Inventories and provisions ........         47,011          31,255
Machinery and equipment ...........         (5,284)        (42,951)
Concession rights .................       (183,145)       (251,758)
Other .............................          1,369          (5,239)
                                      ------------    ------------
Net deferred income tax asset .....   $    129,211    $     97,178
                                      ============    ============
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, 2000, 2001 and 2002 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.
There was no basis for asset tax in 2001 and 2002

         TAX LOSS CARRYFORWARDS

         At December 31, 2002, 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:

                                      F-18
INFLATION-INDEXED
                                              AMOUNT AS OF      YEAR OF
YEAR IN WHICH LOSS AROSE                   DECEMBER 31, 2002  EXPIRATION
------------------------                   -----------------  ----------
1996 ...................................      $     14,690       2046
1997 ...................................           188,049       2046
1998 ...................................           291,229       2046
1999 ...................................             7,152       2046
2000 ...................................           160,993       2046
2001 ...................................            70,842       2046
2002 ...................................           407,516       2012
                                              ------------
                                              $  1,140,471
                                              ============
NOTE 10 - 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, 2000, 2001 and 2002 the
concession duty expense amounted to $3,334, $3,391 and $3,267, respectively,
which was recorded as operating expense.

                  Capital lease obligations

         At December 31, 2001 and 2002, 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 18 and 19
years, respectively. At the end of the contracts the locomotives will be
returned to the lessor. As of December 31, 2001, the Company had received 150
locomotives. Rents under these agreements amounted $22.8 million in 2000, $34.1
million in 2001 and $32.5 million in 2002.

         Future minimum payments, by year and in the aggregate, under the
aforementioned leases, are as follows:

YEAR ENDING DECEMBER 31,
------------------------
2003 .........................   $   28,720
2004 .........................       28,720
2005 .........................       28,720
2006 .........................       28,720
2007 .........................       28,720
2008 and thereafter ..........      321,851
                                 ----------
                                 $  465,451
                                 ==========
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:

                                      F-19
YEAR ENDING DECEMBER 31,
------------------------
2003 .........................   $   32,830
2004 .........................       18,064
2005 .........................       12,504
2006 .........................       10,012
2007 .........................        9,084
2008 and thereafter ..........       51,143
                                 ----------
                                 $  133,637
                                 ==========
Locomotives maintenance agreements

         The Company has entered into certain locomotive maintenance contacts
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 $30.2 million in 2001 and $35.6
million in 2002. Under this agreement, the Company will pay approximately $33
million in the following 10 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 with a
written notification upon three months notice.

                  Fuel freight service agreement

         On October 30, 2002, the Company entered into a freight service
agreement with PEMEX Refinacion, which will expire until 2006. Under this
agreement the Company has the obligation to provide services amounting in pesos
by year as shown below:
MINIMUM       MAXIMUM
                                   -------       -------
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
                                 ===========   ===========
B) CONTINGENCIES:

         The Company and its subsidiaries are parties to various legal actions
and other claims in the ordinary course of their business, mainly related with
labor and social security obligations. Management does not believe that any
pending litigation against the Company will, individually or in the aggregate,
have a material adverse effect on its results of operations or financial
condition.

         The Company has filed a claim for the refund of approximately $262
million (Ps2,111 million) of value added tax paid in connection with the
Acquisition (see Note 1). However, a full valuation allowance has been provided
in the accompanying financial statements.

                                      F-20
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. 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 requires the fiscal authorities to
issue the VAT credit certificate only in the name of TFM. On December 6, 2002
the upper chamber of the Mexican Fiscal Court has issued a ruling denying TFM's
right to receive a value added tax refund from the Mexican Federal 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. TFM is
considering filing an additional complaint against the fiscal court's new
judgment, and believes that it will prevail. In the event TFM prevails, a third
party who can establish that its rights have been adversely and improperly
affected by the new ruling may seek to bring a claim, in a different proceeding,
against TFM. However, TFM does not believe that any third party's rights would
be improperly affected and believes that it would prevail in any such action.

         In September 2001, Ferrocarril Mexicano, S.A. de C.V. ("Ferromex")
filed a legal claim against the Company relating to payments that both parties
are required to make to each other for interline services and trackage and
haulage rights pursuant to each of their respective concessions. At the date of
issuance of these consolidated financial statements, the Company and Ferromex
have not been able to agree upon the rates that each is required to pay to the
other for such services and rights. Accordingly, in 2001 the Company has
initiated an administrative proceeding pursuant to the Mexican Railroad Services
Law and Regulations requesting a determination of such rates by the SCT to
determine the conditions and rates under which such services and rights are to
be rendered. On September 25, 2002 the third civil court of Mexico City rendered
its judgment in favor of TFM. Ferromex has appealed the judgment and it cannot
be predicted whether TFM will ultimately prevail.

         On March 14, 2002, the Company received the ruling from SCT solving the
procedures and conditions for the trackage rights for 2002. The Ministry of
Transportation was silent with respect to rates for interline services and
stated that rates for haulage services should be privately negotiated because
these services are not established under any railroad concession. The trackage
rights rates established by the Ministry of Transportation under the ruling are
to become effective immediately, and the Company and Ferromex are directed to
settle the amounts each one owes to the other for interline services and
trackage and haulage rights within a period of 45 day after TFM commence
operating under long-distance trackage rights. Although the Ministry of
Transportation's ruling establishes rates using the criteria set forth in the
Mexican railroad services law and regulations, TFM is appealing the ruling on
the grounds that it fails to establish rates for interline services and because
the Company disagrees with the methodology applied to the criteria in
calculating the trackage rights rates. The Company is also requesting a
suspension of the effectiveness of the ruling pending resolution of this appeal.

         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 transport finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving TFM
access, and in October 2002, TFM filed a counterclaim against Ferromex relating
to these actions.

         Management cannot predict whether TFM will ultimately prevail in this
proceeding and whether the rates TFM is ultimately allowed to charge will be
adequate to compensate the Company. Management believes that, even if the rates
established in the ruling go 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 the results of operations. However, Management cannot
guarantee that the competitors' usage of TFM's rail lines will not result in
losing business or that losses will be offset by revenues generated from the
payments for the rights to use TFM's tracks.

         The Company believes that the payments for interline services and
haulage owed by Ferromex exceed the amount of payments that Ferromex claims the
Company owes to Ferromex for such services and rights. Accordingly, the Company
believes that the outcome of this legal claim will not have a material adverse
effect on the financial condition of TFM.

                                      F-21
NOTE 11 - RECONCILIATION OF DIFFERENCES BETWEEN IAS AND U.S. GAAP:

         The Company's combined and consolidated financial statements are
prepared in accordance with IAS which differ in certain material respects from
U.S. GAAP. The main differences between IAS 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 an on
stockholders' equity.

         a. RECONCILIATION OF NET INCOME:
YEAR ENDED DECEMBER, 31,
                                                     REFERENCE TO         ------------------------
                                                       SUBNOTE D.      2000         2001         2002
                                                     ------------      ----         ----         ----
Net income (loss) under IAS ......................                  $  50,814    $ 102,154    ($ 11,350)
Deferred income tax ..............................        i            (1,824)      (6,236)     121,687
Deferred employees' statutory profit sharing .....        i             4,573       (3,066)      26,075
Deferred charges .................................       ii                           (933)         702
Depreciation .....................................      iii                                        (459)
                                                                    ---------    ---------    ---------
Net income under U.S. GAAP .......................                  $  53,563    $  91,919    $ 136,655
                                                                    =========    =========    =========
b. RECONCILIATION OF STOCKHOLDERS' EQUITY:
YEAR ENDED DECEMBER, 31,
                                                                    REFERENCE TO        ------------------------
                                                                      SUBNOTE D.         2001            2002
                                                                    ------------         ----            ----
Stockholders' equity under IAS....................................                  $   1,979,963   $   1,648,516
Deferred income tax...............................................        i               (87,889)         33,798
Deferred employees' statutory profit sharing......................        i                12,458          38,533
Deferred charges..................................................       ii                  (933)           (231)
Depreciation......................................................      iii                                  (459)
Effect on purchase of subsidiary shares...........................      iii                                20,557
                                                                                    -------------   -------------
Stockholders' equity under U.S. GAAP..............................                  $   1,903,599   $   1,740,714
                                                                                    =============   =============
c. ANALYSIS OF CHANGES IN STOCKHOLDERS' EQUITY UNDER U.S. GAAP:
YEAR ENDED DECEMBER, 31,
                                                                    REFERENCE TO        ------------------------
                                                                      SUBNOTE D.         2001            2002
                                                                    ------------         ----            ----
Balance at beginning of the year..................................                  $   1,811,680   $   1,903,599
Effect on purchase of subsidiary shares...........................      iii                               (43,410)
Treasury shares...................................................                                       (256,130)
Net income........................................................                         91,919         136,655
                                                                                    -------------   -------------
Balance at end of the year........................................                  $   1,903,599   $   1,740,714
                                                                                    =============   =============
d. SIGNIFICANT DIFFERENCES BETWEEN IAS 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

                                      F-22
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. IAS 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 IAS at December 31, 2001
and 2002 are summarized below:
DEFERRED INCOME          DEFERRED PROFIT
                                                            TAX ASSETS             SHARING ASSETS
                                                            ----------             --------------
                                                        2001         2002         2001      2002
                                                        ----         ----         ----      ----
Amounts recorded under IAS....................       $  129,211  $     97,178
Amount determined under U.S. GAAP.............           41,322       130,976  $  12,458  $  38,533
                                                     ----------  ------------  ---------  ---------
Net difference................................       $   87,889  ($    33,798) $  12,458  $  38,533
                                                     ==========  ============  =========  =========
Under U.S. GAAP, employees' profit sharing would be considered as
operating expense.

                  ii.      Deferred charges

         During 2001, the Company incurred certain financing costs paid to third
parties which were capitalized under IAS. Under U.S. GAAP, it is required that
those costs are expensed as incurred.

         Additionally during 2002, the Company incurred 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 IAS these expenses should be capitalized and
amortized over the period of the senior notes.

                  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' 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, 2002 the depreciation of this transaction was $459. 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.

                  iv.      Earnings per share

         The weighted average number of shares outstanding for the years ended
December 31, 2000, 2001 and 2002 was 1,383,987,505. The net income per share
(basic and diluted) under U.S. GAAP was $0.039 in 2000, $0.066 in 2001 and
$0.099 in 2002.

                  v.       Sales and disposals of fixed assets

         In accordance with SAB 101, the gains or losses on sales and disposal
of fixed assets should be included in other operating expenses. Under IAS, these
expenses are included in other expenses -net. For the years ended December 31,
2000, 2001 and 2002 the (losses) or gains on sales and disposals of fixed assets
amounted to ($23,203), $53,159 and ($6,897), respectively.

                  vi.      Extraordinary item

         Under IAS, the deferred financing costs expensed for the prepayment of
the senior credit facilities for an amount of $9,227 were included in interest,
while under U.S. GAAP, it would be included in the income statement as
extraordinary item, net of taxes ($5,075).

                                      F-23
vii.     Effect of recently issued accounting standards as
they relate to the Company

         On August 15, 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("FAS 143") "Accounting for Asset Retirement Obligations".
This statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement applies to all entities. It applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. As
used in this statement, a legal obligation is an obligation that a party is
required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract or by legal construction of a contract
under the doctrine of promissory estoppel. This statement also requires that the
fair value of a liability for and asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. This Statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Earlier application is encouraged.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April
2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." As a result, gains and losses from extinguishment of
debt will no longer be classified as extraordinary items unless they meet the
criteria of unusual or infrequent as described in APB Opinion No. 30, "Reporting
the Results of Operations -Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002.

         In July of 2002, the FASB issued Statement No. 146 ("SFAS 146"),
"Accounting for Cost Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force No. 94-3
("EITF 94-3"), "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exist an Activity (Including Certain Costs Incurred in a
Restructuring)". The principal difference between SFAS 146 and EITF 94-3 is that
FAS 146 requires that a liability for a cost associated with a exit or disposal
activity be recognized when the liability is incurred rather than at the date of
an entity's commitment to an exit plan. This Statement also revises the
definition of exit costs and established that fair value is the objective for
initial measurement of the liability.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statement 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.
This Statement 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. This Statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
Management is still assessing whether this Statement will have a material effect
on the Company's financial position or results of operation.

         In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others as Interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB Interpretation No. 34." This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognitions and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on the Company's financial statements.

                                      F-24
Management is currently evaluating the impact that the adoption of the
above-mentioned statements will have on the 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 IAS
and U.S. GAAP:
CONDENSED, COMBINED AND
                                                                                  CONSOLIDATED BALANCE SHEETS
                                                                                         DECEMBER 31,
                                                                                         ------------
                                                                                  2001                 2002
                                                                                  ----                 ----
Total current assets......................................................  $        290,760      $        265,222
Due from Mexican Government...............................................            81,892
Long term account receivable..............................................                                   1,388
Concession rights and related assets - Net................................         1,205,887             1,164,301
Property, machinery and equipment - Net...................................           568,755               638,714
Long-term receivable from Grupo TFM.......................................           661,275               661,478
Deferred income taxes and employees' statutory profit sharing.............            53,780               160,260
Other non-current assets..................................................            17,329                41,846
                                                                            ----------------      ----------------
         Total assets.....................................................  $      2,879,678      $      2,933,209
                                                                            ----------------      ----------------
Total short-term liabilities..............................................  $        381,453      $        147,292
Total long-term liabilities...............................................           594,626             1,045,287
                                                                            ----------------      ----------------
         Total liabilities................................................           976,079             1,192,579
                                                                            ----------------      ----------------
Minority interest.........................................................                                     (84)
                                                                            ----------------      ----------------
Capital stock.............................................................         1,758,882             1,758,882
Effect on purchase of subsidiary shares...................................            22,390               (21,395)
Treasury shares...........................................................                                (256,130)
Retained earnings.........................................................           122,327               259,357
                                                                            ----------------      ----------------
         Total stockholders' equity.......................................         1,903,599             1,740,714
                                                                            ----------------      ----------------
         Total liabilities and stockholders' equity.......................  $      2,879,678      $      2,933,209
                                                                            ================      ================
CONDENSED, COMBINED AND CONSOLIDATED
                                                                                STATEMENTS OF INCOME

                                                                                 YEARS ENDED DECEMBER 31,
                                                                                 ------------------------
                                                                          2000             2001            2002
                                                                          ----             ----            ----
Transportation revenues.........................................     $      695,425   $      720,627  $      712,140
Total operating expenses........................................            549,199          520,407         539,183
                                                                     --------------   --------------  --------------
Operating income................................................            146,226          200,220         172,957
Other income (expenses) - net...................................                314          (18,902)        (12,717)
Comprehensive financing cost....................................           (103,862)         (80,613)       (113,323)
                                                                     --------------   --------------  --------------
Income before provision for deferred income taxes, minority
     interest and extraordinary item............................             42,678          100,705          46,917
Current income tax..............................................                                 (79)
Deferred income tax benefit (expense)...........................             15,960           (8,707)         89,654
Minority interest...............................................                                                  84
                                                                     --------------   --------------  --------------
Income before extraordinary item................................             58,638           91,919         136,655
Extraordinary item, net of taxes................................             (5,075)
                                                                     --------------   --------------  --------------
Net income for the year.........................................     $       53,563   $       91,919  $      136,655
                                                                     ==============   ==============  ==============
F-25
NOTE 12 -- SUBSEQUENT EVENTS (UNAUDITED)

         On April 21, 2003, Grupo TMM and KCS announced a series of agreements
that have been approved by their respective boards of directors, that will,
following shareholder and regulatory approval, place the Kansas City Southern
Railway Company ("KCSR"), the Texas Mexican Railway Company ("Tex-Mex"), and
TFM, under the common control of a single transportation holding company, NAFTA
Rail, to be headquartered in Kansas City, Missouri. As part of the transaction
KCS will change its name to NAFTA Rail, which will trade on the New York Stock
Exchange ("NYSE").

         The common control of KCSR and Tex-Mex under NAFTA Rail, would require
approval of the U.S. Surface Transportation Board. Additionally, the acquisition
of Grupo TFM shares by NAFTA Rail would require the approval of the Competition
Commission and the Foreign Investment Commission in Mexico.

         Under the Grupo TFM acquisition agreement, TMM Multimodal, a subsidiary
of Grupo TMM, will receive 18 million shares of NAFTA Rail representing
approximately 22 percent (20% voting, 2% subject to voting restrictions) of
NAFTA Rail, $200 million in cash and a potential incentive payment of between
$100 million and $180 million based on the resolution on the resolution of
certain future contingencies (i.e., the VAT claim).

         On May 9, 2003, TFM sold 51% interest in Mexrail and its wholly-owned
subsidiary, the Tex-Mex Railway Company, to KCS for $32.6 million. The Mexrail
stock sold will 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 this agreement, TFM shall retain the right to repurchase all of the
shares from KCS at any time for an amount equal to the purchase price. Such
right shall be unconditional and may 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. Proceeds from the sale were re-invested
in TFM.

                                      F-26
GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

                        REPORT OF INDEPENDENT ACCOUNTANTS

Mexico City, February 28, 2003

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, 2002 and 2001, 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, 2002,
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 Auditing Standards Generally Accepted in the United States of
America. 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
Accounting 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, 2002 and 2001, and the combined
and consolidated results of their operations, the changes in stockholders'
equity and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with International Accounting Standards.

         International Accounting Standards differ in certain material respects
from Accounting Principles Generally Accepted in the United States of America.
The application of the latter would have affected the determination of the
combined and consolidated net income for each of the three years in the period
ended December 31, 2002, and the determination of combined and consolidated
stockholders' equity and combined and consolidated financial position as of
December 31, 2002 and 2001, to the extent summarized in Note 11 to the
consolidated financial statements.

PricewaterhouseCoopers

Alberto Del Castillo V. Vilchis
Audit Partner

                                      F-27
GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

                    COMBINED AND CONSOLIDATED BALANCE SHEETS
                                    (NOTE 1)
                      (amounts in thousands of US dollars)
DECEMBER 31,
                                                                                                ------------
                                                                                            2001           2002
                                                                                            ----           ----
ASSETS
Current assets:
     Cash and cash equivalents ......................................................   $     53,110   $     30,249
     Accounts receivable net of allowance for doubtful
         accounts of $3,568 in 2001 and $3,913 in 2002 ..............................        103,562         90,596
     Amounts due from related parties (Note 7) ......................................        (22,728)         5,316
     Other accounts receivable - Net ................................................         78,042        106,628
     Materials and supplies .........................................................         23,329         20,261
     Other current assets ...........................................................         10,030         12,200
                                                                                        ------------   ------------

          Total current assets ......................................................        290,801        265,250

Due from Mexican Government (Note 3) ................................................         81,892
Long-term account receivable ........................................................                         1,388
Concession rights and related assets - Net (Note 3) .................................      1,257,591      1,215,487
Property, machinery and equipment - Net (Note 4) ....................................        568,755        609,367
Investment held for operating purposes (Note 2i.) ...................................          6,166          7,435
Deferred financing costs ............................................................         11,647         34,281
Other assets ........................................................................            454            365
Deferred income taxes (Note 9) ......................................................        131,206        100,972
                                                                                        ------------   ------------

          Total assets ..............................................................   $  2,348,512   $  2,234,545
                                                                                        ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term liabilities:
     Commercial paper (Note 5) ......................................................   $    264,638
     Current portion of long-term debt (Note 5) .....................................                  $     18,286
     Current portion of capital lease obligations (Note 10) .........................            298            267
     Amounts owed to related parties (Note 7) .......................................         10,767          9,175
     Accounts payable and accrued expenses ..........................................        105,756        119,567
                                                                                        ------------   ------------

     Total short-term liabilities ...................................................        381,459        147,295
                                                                                        ------------   ------------

Long-term portion of capital lease obligations (Note 10) ............................          2,137          1,875
Long-term debt (Note 5) .............................................................        570,938      1,002,677
Other long-term liabilities .........................................................         21,554         40,735
                                                                                        ------------   ------------

     Total long-term liabilities ....................................................        594,629      1,045,287
                                                                                        ------------   ------------

     Total liabilities ..............................................................        976,088      1,192,582
                                                                                        ------------   ------------

Minority interest (Note 2o.) ........................................................        395,992        329,619
                                                                                        ------------   ------------

Commitments and contingencies (Note 10)

Subsequent events (Note 12)

Stockholders' equity (Note 8):
Common stock, 10,063,570 shares authorized and issued without par value .............   $    807,008   $    807,008
Treasury shares .....................................................................                      (204,904)
Effect on purchase of subsidiary shares .............................................         17,912        (33,562)
Retained earnings ...................................................................        151,512        143,802
                                                                                        ------------   ------------

     Total stockholders' equity .....................................................        976,432        712,344
                                                                                        ------------   ------------

     Total liabilities and stockholders' equity .....................................   $  2,348,512   $  2,234,545
                                                                                        ============   ============
The accompanying notes are an integral part of these combined
                     and consolidated financial statements.

                                      F-28
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)
YEAR ENDED DECEMBER 31,
                                                                                        -----------------------
                                                                                      2000         2001         2002
                                                                                      ----         ----         ----
Transportation revenues ........................................................   $  695,425   $  720,627   $  712,140
                                                                                   ----------   ----------   ----------

Operating expenses:
     Salaries, wages and employee benefits .....................................      111,790      128,845      124,413
     Purchased services ........................................................      138,453      147,015      163,835
     Fuel, material and supplies ...............................................       74,203       68,717       58,594
     Other costs ...............................................................      129,497      147,578      129,428
     Depreciation and amortization .............................................       77,777       79,496       82,552
                                                                                   ----------   ----------   ----------

         Total operating expenses ..............................................      531,720      571,651      558,822
                                                                                   ----------   ----------   ----------

Operating income ...............................................................      163,705      148,976      153,318
                                                                                   ----------   ----------   ----------

Other (expenses) income - Net ..................................................      (21,574)      35,572      (19,255)
                                                                                   ----------   ----------   ----------

Interest income ................................................................        2,238        4,510        4,974
Interest expense ...............................................................     (109,739)     (87,009)    (101,722)
Exchange (loss) gain - Net .....................................................       (1,424)       2,783      (17,411)
                                                                                   ----------   ----------   ----------

Net comprehensive financing cost ...............................................     (108,925)     (79,716)    (114,159)
                                                                                   ----------   ----------   ----------

Income before provision for deferred income taxes and minority interest ........       33,206      104,832       19,904

Deferred income tax benefit (expense) (Note 9) .................................       18,268       (2,652)     (30,233)
                                                                                   ----------   ----------   ----------

Income (loss) before minority interest .........................................       51,474      102,180      (10,329)

Minority interest ..............................................................      (10,163)     (20,431)       2,341
                                                                                   ----------   ----------   ----------

Net income (loss) for the year .................................................   $   41,311   $   81,749   $   (7,988)
                                                                                   ==========   ==========   ==========

Net income (loss) for the year per share (Note 2p.) ............................   $     4.10   $     8.12   $    (.886)
                                                                                   ==========   ==========   ==========
The accompanying notes are an integral part of these combined
                     and consolidated financial statements.

                                      F-29
GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

                 COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES
                   IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
                        DECEMBER 31, 2000, 2001 AND 2002
                                 (NOTES 1 AND 8)
                      (amounts in thousands of US dollars)
EFFECT ON
                                                             PURCHASE OF
                                               COMMON        SUBSIDIARY       TREASURY       RETAINED
                                                STOCK          SHARES          SHARES        EARNINGS        TOTAL
                                                -----          ------          ------        --------        -----
Balance at December 31, 1999.............    $    807,008   $     17,912                   $     28,452   $    853,372
Net income for the year..................                                                        41,311         41,311
                                             ------------   ------------                   ------------   ------------

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

                                      F-30
GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

               COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (NOTE 1)
                      (amounts in thousands of US dollars)
YEAR ENDED DECEMBER 31,
                                                                                   -----------------------
                                                                            2000            2001            2002
                                                                            ----            ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year.....................................     $     41,311    $     81,749    $     (7,988)
                                                                        ------------    ------------    ------------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
     Depreciation and amortization.................................           77,777          79,496          82,552
     Amortization of discount on senior secured debentures and
         commercial paper..........................................           45,665          49,408          23,158
     Deferred income tax (benefit) expense.........................          (18,268)          2,652          30,233
     Provision for doubtful accounts...............................            1,852            (247)            345
     Amortization of deferred financing costs......................           14,307           3,498           5,140
     Minority interest.............................................           10,163          20,431          (2,341)
     Loss on sale of property, machinery and equipment - Net.......           23,203           7,585           6,897
     Gain on transfer of concession rights - Net...................                          (60,744)
     Changes in other assets and liabilities:
             Accounts receivable...................................          (34,277)        (17,450)         12,621
             Other accounts receivable.............................           (4,132)        (24,595)        (36,915)
             Materials and supplies................................           (3,030)          1,269           3,068
             Other current assets..................................              248          (1,084)         (2,170)
             Amounts due to related parties........................               15         (21,289)         (4,180)
             Accounts payable and accrued expenses.................           21,935          11,912          13,811
             Other non-current assets and long-term liabilities....              (62)            (44)        (11,485)
                                                                        ------------    ------------    ------------
             Total adjustments.....................................          135,396          50,798         120,734
                                                                        ------------    ------------    ------------
Net cash provided by operating activities..........................          176,707         132,547         112,746
                                                                        ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Mexrail Inc..........................................                                          (44,000)
Sale of property, machinery and equipment..........................            7,153           2,012             642
Acquisition of property, machinery and equipment...................          (66,918)        (85,245)        (89,355)
Acquisition of treasury shares.....................................                                         (162,575)
                                                                        ------------    ------------    ------------
Net cash used in investing activities..............................          (59,765)        (83,233)       (295,288)
                                                                        ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under commercial paper....................................                          (25,156)       (340,000)
Repayments for debt................................................          (15,074)
Proceeds from commercial paper.....................................          280,662                         196,738
Proceeds from senior notes.........................................                                          175,241
Proceeds from term loan facility...................................                                          128,000
Principal payment of senior secured credit facility................         (269,769)
Proceeds from revolving credit facility............................           15,102
Principal payments under capital lease obligations.................          (10,248)         (4,227)           (298)
Payments under revolving credit facility...........................         (100,100)
                                                                        ------------    ------------    ------------
Net cash (used in) provided by financing activities................          (99,427)        (29,383)        159,681
                                                                        ------------    ------------    ------------

Increase (decrease) in cash and cash equivalents...................           17,515          19,931         (22,861)
Cash and cash equivalents:
        Beginning of the year......................................           15,664          33,179          53,110
                                                                        ------------    ------------    ------------
        End of the year............................................     $     33,179    $     53,110    $     30,249
                                                                         ============    ============    ============

SUPPLEMENTAL INFORMATION:
 Cash paid during the year for interest............................     $     53,564    $     28,779    $     58,525
                                                                        ============    ============    ============

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

                                      F-31
GRUPO TRANSPORTACION FERROVIARIA MEXICANA, S.A. DE C.V.

           NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
          (amounts in thousands of US dollars, 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. ("Grupo
TMM"), Nafta Rail, S.A. de C.V. ("Nafta"), an indirectly wholly-owned subsidiary
of Kansas City Southern, Inc. ("KCS") and TFM. See Note 8.

         TFM lines are comprised of approximately 2,641 (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 70% 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 and 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 the 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 acquired through the privatization previously transferred by TFM.
Arrendadora TFM is a subsidiary of TFM.

                                      F-32
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Grupo TFM and subsidiaries prepare their financial statements in
accordance with International Accounting Standards ("IAS") 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 11. 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, 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 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.  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 or market.

         e.  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.

         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.

                                      F-33
f.  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).

         g.  FOREIGN CURRENCY POSITION

         At December 31, 2002 Grupo TFM had monetary assets and liabilities
denominated in Mexican pesos of Ps1,292 million and Ps414 million (Ps1,718
million and Ps334 million, at December 31, 2001), respectively. At December 31,
2001 and 2002 the exchange rate was Ps9.18 and Ps10.45 per US dollar,
respectively. At February 28, 2003, date of issuance of these consolidated
financial statements, the exchange rate was Ps10.86 per US dollar.

         h.  DERIVATIVE FINANCIAL INSTRUMENTS

         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.

         i.  INVESTMENT HELD FOR OPERATING PURPOSES

         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, 2000,
2001 and 2002, the equity in the loss (income) of the Mexico City rail terminal
amounted $19, $915 and ($1,269), respectively and is included in other
(expenses) income-net in the statements of income.

         j.  DEFERRED FINANCING COSTS

         Includes fees and other related expenses paid by the Company to obtain
long-term debt (see Note 5). These deferred financing costs are amortized by the
effective interest method during the outstanding period of such long-term debt.

         k.  DEFERRED INCOME TAX

         Deferred income tax is determined following interperiod allocation
procedures under the liability method.

         Under this method the Company is required to establish a provision for
deferred income taxes on the tax indexation of certain non-current assets and,
in relation to an acquisition, on the difference between the acquisition cost of
the net assets acquired and their tax base.

         l.  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, 2001 and 2002, the
Company had a provision of $1,478 and $778, respectively.

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

                                      F-34
m.  REVENUE RECOGNITION

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

         n.  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 when the
expected future operating cash flows, undiscounted and without interest charges,
derived from such intangible assets and long-lived assets are less than their
carrying value.

         o.  MINORITY INTEREST

         The minority interest reflects the 20% share of the Company held by the
Government.

         p.  NET INCOME PER SHARE

         Net income 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, 2000, 2001 and 2002 was 10,063,570,
10,063,570 and 9,011,069, respectively.

         q.  CONCENTRATION OF RISK

         Over 23% 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 an allowance for doubtful
accounts.

         r.  USE OF ESTIMATES

         The preparation of the 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.

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-35
Concession rights and related assets are summarized as follows:
DECEMBER 31,
                                                               ------------            ESTIMATED USEFUL
                                                            2001           2002          LIVES (YEARS)
                                                            ----           ----          -------------
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.............................       (215,735)      (257,839)
                                                        ------------   ------------
Concession rights and related assets - net...........   $  1,257,591   $  1,215,487
                                                        ============   ============
Amortization of concession rights was $40.5 million, $40.0 million, and
$40.2 for the years ended December 31, 2000, 2001 and 2002, 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 (expenses) income - net in
the statement of income.

         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 by FNM under capital lease arrangements (see
Note 10). Legal title to the purchased assets was transferred to TFM at that
time.

                                      F-36
DECEMBER 31,
                                                               ------------            ESTIMATED USEFUL
                                                             2001          2002          LIVES (YEARS)
                                                             ----          ----          -------------
Locomotives.........................................    $    176,647   $    176,456            14
Freight cars........................................         105,921         98,622          12-16
Machinery of workshop...............................          17,111         17,515             8
Machinery of road...................................          28,233         30,906            14
Furniture and equipment.............................         268,198        318,677           1-15
Buildings...........................................           6,697          7,168            20
Other...............................................          67,081         77,192             8
                                                        ------------   ------------
                                                             669,888        726,536
Less accumulated depreciation and amortization......        (159,430)      (199,246)
                                                        ------------   ------------
                                                             510,458        527,290
Land................................................          37,538         37,607
Construction in progress............................          20,759         44,470
                                                        ------------   ------------
                                                        $    568,755   $    609,367
                                                        ============   ============
Depreciation of property, machinery and equipment was $37.2 million in
2000, $39.4 million in 2001 and $42.8 in 2002.

NOTE 5 - FINANCING:

         Financing is summarized as follows:
DECEMBER 31,
                                                                  ------------
                                                              2001            2002
                                                              ----            ----
SHORT-TERM DEBT:
Commercial paper (1) ..................................   $    265,000
Less-discount on commercial paper .....................           (362)
                                                          ------------    ------------
                                                          $    264,638    $          -
                                                          ============    ============
CURRENT PORTION OF LONG-TERM DEBT:
Term loan facility (6) ................................                   $     18,286
                                                          ============    ============

LONG-TERM DEBT:
Senior notes due 2007 (2) .............................   $    150,000    $    150,000
Senior discount debentures (3) ........................        443,501         443,501
Senior notes due 2012 (4) .............................                        180,000
Commercial paper (5) ..................................                        122,000
Term loan facility (6) ................................                        109,714
                                                          ------------    ------------
                                                               593,501       1,005,215
Less-discount on senior discount debentures, senior
     notes and commercial paper .......................        (22,563)         (2,538)
                                                          ------------    ------------
                                                          $    570,938    $  1,002,677
                                                          ============    ============
(1)      COMMERCIAL PAPER

         On September 17, 2002, the total amount of the 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 Company repaid the remaining $60 million of
indebtedness outstanding under the former commercial program. See (5) below.

                                      F-37
(2)      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, 2000, 2001 and 2002.

         (3)      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 will be
payable thereon prior to June 15, 2002. The SDD will mature on June 15, 2009.
The price of the SDD represents a yield to maturity of 11.75% fixed rate,
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 the
redemption prices shown in the next page (expressed in percentages of principal
amount at maturity), plus accrued and unpaid interest, if any. The unamortized
discount at December 31, 2001 amounted to $22,563.
SENIOR DISCOUNT
                                                                         DEBENTURE
YEAR                                                                  REDEMPTION PRICE
----                                                                  ----------------
2002......................................................                105.8750%
2003......................................................                102.9375%
2004 and thereafter.......................................                100.0000%
Interest expense related with the SDD amounted to $42,608, $47,763 and
$53,406 during 2000, 2001 and 2002, respectively.

         (4)      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 for 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 an 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, at any time in the event of certain changes in Mexican tax
law. 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 unamortized discount
at December 31, 2002 amounted to $2,376.

         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, for the year ended December 31, 2002.

         According to the refinancing of the commercial paper program due in
September 2002, the Company entered into two new bank facilities as follows:

                                      F-38
(5)      COMMERCIAL PAPER

         The commercial paper program consists of a two-year facility in the
amount of $122,000, which is supported by a letter of credit issued under the
bank facility. The 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 commercial paper facility rank at least pari passu with the
other senior unsecured indebtedness. The unamortized discount at December 31,
2002 amounted to $162.

         (6)      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.

         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.

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. TFM's fuel hedging program covered
approximately 25% of estimated fuel purchases. 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.

         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, 2001, the Company had eight Mexican peso call
options outstanding in the notional amount of $10 million each one, based on the
exchange rate of Ps9.973 per dollar. These options expired during 2002.

         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 will expire 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, 2002.

                                      F-39
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, 2001 was $138,000 and
$385,845, and at December 31, 2002 was $140,625 and $427,334, respectively. The
related fair value of the senior notes due 2012 at December 31, 2002 was
$179,325. 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:
DECEMBER 31,
                                                                               ------------
                                                                             2001           2002
                                                                             ----           ----
ACCOUNTS RECEIVABLE:
TMM Multimodal........................................................   $     20,000
Other Grupo TMM's subsidiaries........................................          2,728   $      5,316
                                                                         ------------   ------------
                                                                         $     22,728   $      5,316
                                                                         ============   ============

ACCOUNTS PAYABLE:
KCS...................................................................   $      3,284   $      1,222
Terminal Ferroviaria del Valle del Mexico, S.A. de C.V................          2,308          3,479
Other Grupo TMM's subsidiaries........................................          5,175          4,474
                                                                         ------------   ------------
                                                                         $     10,767   $      9,175
                                                                         ============   ============
The most important transactions with related parties are summarized as
follows:
YEAR ENDED DECEMBER 31,
                                                                          -----------------------
                                                                    2000            2001            2002
                                                                    ----            ----            ----
Transportation revenues....................................     $      3,410    $      3,434    $      7,645
                                                                ============    ============    ============
Management services........................................     $     (2,500)   $     (2,500)   $     (2,500)
                                                                ============    ============    ============
Other expenses.............................................     $     (5,262)   $     (9,501)   $    (11,634)
                                                                ============    ============    ============
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) $2,500,000 paid in nine equal monthly installments beginning in April 2002,
as compensation for services rendered between January 1, 1999 and December 31,
2000; (2) and 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

                                      F-40
arrears, for the period beginning January 1, 2003 at an annual rate of
$1,250,000. 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 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.

         At December 31, 2002 the capital stock of Grupo TFM is represented by
10,063,570 shares as follows:
NUMBER OF SHARES              NUMBER OF SHARES
                                         (FIXED PORTION OF CAPITAL    (VARIABLE PORTION OF CAPITAL
STOCKHOLDERS                                      STOCK)                        STOCK)
------------                              ------------------------     ---------------------------
Series "A"                    Series "A"
                                                 ----------                    ----------
TMM Multimodal.........................            25,500                       3,842,901

                                                 Series "B"                  Sub-series "B"
                                                 ----------                  --------------
Nafta..................................            24,500                       3,692,199

                                                 Series "L"                  Sub-series "L"
                                                 ----------                  --------------
TFM (treasury shares)..................              __                         2,478,470

                                                   ------                      ----------
        TOTAL:                                     50,000                      10,013,570
                                                   ======                      ==========
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 by the 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,

                                      F-41
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%
non-voting interest in Grupo TFM. (See Note 1).

         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's TFM interest,
the Government may require Grupo TMM and KCS to purchase the TFM shares at the
price discussed above. See Note 3.

         Dividends paid are not subject to income tax if paid from the Net Tax
Profit Account. Any excess over this account is subject to a tax equivalent to
51.52%, 49.25% or 47.06% depending on whether paid in 2003, 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 - 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.

         Grupo TFM and its subsidiaries had combined losses for tax purposes of
$135,816, $51,680 and $401,415 for the years ended December 31, 2000, 2001 and
2002, 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 (benefit) expense for income tax (credited) charged to income was
as follows:
YEAR ENDED DECEMBER 31,
                                                                     -----------------------
                                                          2000                2001                 2002
                                                          ----                ----                 ----
Current income tax..................................  $          -        $         79        $          -
Deferred income tax (benefit) expense...............       (18,268)              2,573              30,233
                                                      ------------        ------------        ------------
Net income tax (benefit) expense....................  $    (18,268)       $      2,652        $     30,233
                                                      ============        ============        ============
Reconciliation of the income tax expense based on the statutory income
tax rate to recorded income tax (benefit) expense is as follows:
YEAR ENDED DECEMBER 31,
                                                                     -----------------------
                                                          2000                2001                2002
                                                          ----                ----                ----
Income before income tax............................  $     33,206        $    104,832        $     19,904
                                                      ============        ============        ============
Income tax at 35%...................................  $     11,622        $     36,691        $      6,967
(Decrease) increase resulting from:
Effects of inflationary components..................        (2,603)            (10,969)              4,867
Effects of inflation on tax loss carryforwards......       (28,599)            (26,202)             14,281
Non-deductible expenses.............................           672                 911               2,128
Change in tax rate from 35% to 32%..................                                                (1,837)
Other - Net.........................................           640               2,142               3,827
                                                      ------------        ------------        ------------
Net deferred income tax (benefit) expense...........  $    (18,268)       $      2,573        $     30,233
                                                      ============        ============        ============
F-42
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 2003 to
32% in 2005.

         The components of deferred tax assets and (liabilities) are comprised
of the following:
DECEMBER 31,
                                                                                ------------
                                                                           2001               2002
                                                                           ----               ----
Tax-loss carryforwards.............................................    $      287,045    $      381,954
Inventories and provisions - Net...................................            47,011            31,255
Machinery and equipment............................................            (5,284)          (42,951)
Concession rights..................................................          (198,922)         (264,046)
Other..............................................................             1,356            (5,240)
                                                                       --------------    --------------
Net deferred income tax asset......................................    $      131,206    $      100,972
                                                                       ==============    ==============
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, 2000, 2001 and 2002, 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.
There was no basis for asset tax in 2001 and 2002.

         TAX LOSS CARRYFORWARDS

         At December 31, 2002 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 the next page.
INFLATION-INDEXED
                                                                  AMOUNTS AS OF
YEAR IN WHICH LOSS AROSE                                        DECEMBER 31, 2002      YEAR OF EXPIRATION
------------------------                                        -----------------      ------------------
1996......................................................       $        14,690             2046
1997......................................................               232,418             2046
1998......................................................               292,030             2046
1999......................................................                 7,152             2046
2000......................................................               160,993             2046
2001......................................................                70,842             2046
2002......................................................               412,168             2012
                                                                 ---------------
                                                                 $     1,190,293
                                                                 ===============
NOTE 10 - 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, 2000, 2001 and 2002 the
concession duty expense amounted to $3,334, $3,391 and $3,267, respectively,
which was recorded as operating expense.

                                      F-43
Capital lease obligations

         At December 31, 2001 and 2002, 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 18 and 19
years, respectively. At the end of the contracts the locomotives will be
returned to the lessor. As of December 31, 2002, the Company had received 150
locomotives. Rents under these agreements amounted to $22.8 million in 2000,
$34.1 million in 2001 and $32.5 million in 2002.

         Future minimum payments, by year and in the aggregate, under the
aforementioned leases are as follows:
YEAR ENDING DECEMBER 31,
------------------------
2003....................................................................   $     28,720
2004....................................................................         28,720
2005....................................................................         28,720
2006....................................................................         28,720
2007....................................................................         28,720
2008 and thereafter.....................................................        321,851
                                                                           ------------
                                                                           $    465,451
                                                                           ============
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:
YEAR ENDED DECEMBER 31,
-----------------------
2003....................................................................  $     32,830
2004....................................................................        18,064
2005....................................................................        12,504
2006....................................................................        10,012
2007....................................................................         9,084
2008 and thereafter.....................................................        51,143
                                                                          ------------
                                                                          $    133,637
                                                                          ============
Locomotives maintenance agreements

         The Company has entered into two locomotives 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 and
$35.6 million in 2002. Under this agreement, the Company will pay approximately
$33 million in the following 10 years.

                                      F-44
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 with a
written notification upon three months notice.

                  Fuel freight service agreement

         On October 30, 2002, the Company entered into a freight service
agreement with PEMEX Refinacion, which will expire until 2006. Under this
agreement the Company has the obligation to provide services amounting in pesos
by year as shown below:
MINIMUM            MAXIMUM
                                                           -------            -------
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
                                                         ===========        ============
B) CONTINGENCIES:

         Grupo TFM and its subsidiaries are parties to various legal actions and
other claims in the ordinary course of their business, mainly related with labor
and social security obligations. Management does not believe that any pending
litigation against Grupo TFM and subsidiaries will, individually or in the
aggregate, have a material adverse effect on their results of operations or
financial condition.

         The Company has filed a claim for the refund of approximately $262
million (Ps 2,111 million) of value added tax paid in connection with the
Acquisition (see Note 1). However, a full valuation allowance has been provided
in the accompanying consolidated financial statements.

         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. 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 requires the fiscal authorities to
issue the VAT credit certificate only in the name of TFM. On December 6, 2002
the upper chamber of the Mexican Fiscal Court has issued a ruling denying TFM's
right to receive a value added tax refund from the Mexican Federal 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. TFM is
considering filing an additional complaint against the fiscal courts new
judgment, and in both instances believes that it will prevail. In the event TFM
prevails, a third party who can establish that its rights have been adversely
and improperly affected by the new ruling may seek to bring a claim, in a
different proceeding, against TFM. However, TFM does not believe that any third
party's rights would be improperly affected and believes that it would prevail
in any such action.

         In September 2001, Ferrocarril Mexicano, S.A. de C.V. ("Ferromex")
filed a legal claim against the Company relating to payments that both parties
are required to make to each other for interline services and trackage and
haulage rights pursuant to each of their respective concessions. At the date of
issuance of these consolidated financial statements, the Company and Ferromex
have not been able to agree upon the rates that each is required to pay to the
other for such services and rights. Accordingly, in 2001 the Company has
initiated an administrative proceeding pursuant to the Mexican Railroad Services
Law and Regulations requesting a determination of such rates by the SCT to
determine the conditions and rates under which such services and rights are to
be rendered. On September 25, 2002 the third civil court of Mexico City rendered
its judgment in favor of TFM. Ferromex has appealed the judgment and it cannot
be predicted whether TFM will ultimately prevail.

                                      F-45
On March 14, 2002, the Company received the ruling from SCT solving the
procedures and conditions for the trackage rights for 2002. The Ministry of
Transportation was silent with respect to rates for interline services and
stated that rates for haulage services should be privately negotiated because
these services are not established under any railroad concession. The trackage
rights rates established by the Ministry of Transportation under the ruling are
to become effective immediately, and the Company and Ferromex are directed to
settle the amounts each one owes to the other for interline services and
trackage and haulage rights within a period of 45 day after TFM commence
operating under long-distance trackage rights. Although the Ministry of
Transportation's ruling establishes rates using the criteria set forth in the
Mexican railroad services law and regulations, TFM is appealing the ruling on
the grounds that it fails to establish rates for interline services and because
the Company disagree with the methodology applied to the criteria in calculating
the trackage rights rates. The Company is also requesting a suspension of the
effectiveness of the ruling pending resolution of this appeal.

         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 transport finished vehicles to the border crossing at Nuevo
Laredo. Ferromex was subsequently ordered by the court to resume giving TFM
access, and in October 2002, TFM filed a counterclaim against Ferromex relating
to these actions.

         Management cannot predict whether TFM will ultimately prevail in this
proceeding and whether the rates TFM is ultimately allowed to charge will be
adequate to compensate the Company. Management believes that, even if the rates
established in the ruling go 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 the results of operations. However, Management cannot
guarantee that the competitors' usage of TFM's rail lines will not result in
losing business or that losses will be offset by revenues generated from the
payments for the rights to use TFM's tracks. The Company believes that the
payments for interline services and haulage owed by Ferromex exceed the amount
of payments that Ferromex claims the Company owes to Ferromex for such services
and rights. Accordingly, the Company believes that the outcome of this legal
claim will not have a material adverse effect on the financial condition of TFM.

NOTE 11 - RECONCILIATION OF DIFFERENCES BETWEEN IAS AND U.S. GAAP:

         The Company's combined and consolidated financial statements are
prepared in accordance with IAS which differ in certain material respects from
U.S. GAAP. The main differences between IAS 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
YEAR ENDED DECEMBER 31,
                                                                                 -----------------------
                                                          REFERENCE
                                                          TO SUBNOTE
                                                          ----------
                                                              d.              2000           2001           2002
                                                          ----------          ----           ----           ----
Net income (loss) under IAS..........................                    $     41,311    $     81,749   $     (7,988)
Deferred income tax..................................           i              (1,822)         (6,679)       121,738
Deferred employees' statutory profit sharing.........           i               4,573          (2,623)        25,792
Deferred charges.....................................          ii                                (933)           702
Depreciation.........................................         iii                                               (459)
Effect of U.S. GAAP adjustments on
     minority interest...............................                            (550)          2,047        (29,601)
                                                                         ------------    ------------   ------------
Net income under U.S. GAAP...........................                    $     43,512    $     73,561   $    110,184
                                                                         ============    ============   ============
F-46
b.  RECONCILIATION OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31,
                                                                                       -----------------------
                                                                 REFERENCE TO
                                                                   SUBNOTE d.        2001               2002
                                                                   ----------        ----               ----
Stockholders' equity under IAS................................                   $    976,432       $    712,344
Deferred income tax...........................................         i              (88,332)            33,406
Deferred employees' statutory profit sharing..................         i               12,901             38,693
Deferred charges..............................................         ii                (933)              (231)
Depreciation..................................................         iii                                  (459)
Effect on purchase of subsidiary shares.......................         iii                                16,447
Effect of U.S. GAAP adjustments on
     minority interest........................................                         15,273            (14,328)
                                                                                 ------------       -------------
Net income under U.S. GAAP....................................                   $    915,341       $    785,872
                                                                                 ============       ============
c.  ANALYSIS OF CHANGES IN STOCKHOLDERS' EQUITY UNDER U.S. GAAP:
YEAR ENDED DECEMBER 31,
                                                                                       -----------------------
                                                                 REFERENCE TO
                                                                   SUBNOTE d.       2001                2002
                                                                   ----------       ----                ----
Balance at beginning of the year..............................                   $    841,780       $    915,341
Effect on purchase of subsidiary shares.......................        iii                                (34,749)
Treasury shares...............................................                                          (204,904)
Net income....................................................                         73,561            110,184
                                                                                 ------------       ------------
Balance at end of the year....................................                   $    915,341       $    785,872
                                                                                 ============       ============
d.  SIGNIFICANT DIFFERENCES BETWEEN IAS AND U.S. 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. IAS do not require the
establishment of assets or liabilities for these differences.

                                      F-47
The differences in the net deferred income tax and employees' statutory
profit sharing assets determined under U.S. GAAP and IAS at December 31, 2001
and 2002 are summarized below:
DEFERRED INCOME                DEFERRED PROFIT
                                                                   TAX ASSETS                  SHARING ASSETS
                                                            -------------------------     --------------------------
                                                               2001            2002          2001            2002
                                                               ----            ----          ----            ----
Amounts recorded under IAS.........................         $ 131,206       $ 100,972     $        -      $        -
Amount determined under U.S. GAAP..................            42,874         134,378         12,901          38,693
                                                            ---------       ---------     ----------      ----------
Net difference.....................................         $  88,332       $ (33,406)    $   12,901      $   38,693
                                                            =========       =========     ==========      ==========
Under U.S. GAAP, employee 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 IAS amounting to $933. Under U.S.
GAAP, it is required that these costs are expensed as incurred.

         Additionally during 2002, the Company incurred 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 IAS these expenses should be capitalized and
amortized over the period of the senior notes.

                  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' 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, 2002 the depreciation of this transaction was $459. 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, 2000, 2001 and 2002 was 10,063,570, 10,063,570 and 9,011,069,
respectively. The net income per share (basic and diluted) under U.S. GAAP was
$4.32 in 2000, $7.31 in 2001 and $12.23 in 2002.

                  v.       Sales and disposals of fixed assets

         In accordance with SAB 101, the gains or losses on sales and disposals
of fixed assets should be included in other operating expenses. Under IAS, these
expenses are included in other (expenses) income - net. For the years ended
December 31, 2000, 2001 and 2002 the (losses) or gains on sales and disposals of
fixed assets amounted to ($23,203), $53,159 and ($6,897), respectively.

                  vi.      Extraordinary item

         Under IAS, the deferred financing costs expensed for the pre-payment of
the Senior credit facilities for an amount of $9,227 were included in interest
expense, while under U.S. GAAP, it would be included in the income statement as
extraordinary item, net of taxes ($5,075).

                                      F-48
vii.     Effect of recently issued accounting standards as
they relate to the Company

         On August 15, 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("FAS 143") "Accounting for Asset Retirement Obligations".
This Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement applies to all entities. It applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. As
used in this Statement, a legal obligation is an obligation that a party is
required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract or by legal construction of a contract
under the doctrine of promissory estoppel. This Statement also requires that the
fair value of a liability for and asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. This Statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Earlier application is encouraged.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April
2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." As a result, gains and losses from extinguishment of
debt will no longer be classified as extraordinary items unless they meet the
criteria of unusual or infrequent as described in APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002.

         In July of 2002, the FASB issued Statement No. 146 ("SFAS 146"),
"Accounting for Cost Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force No. 94-3
("EITF 94-3"), "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exist an Activity (Including Certain Costs Incurred in a
Restructuring)". The principal difference between SFAS 146 and EITF 94-3 is that
FAS 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than at the date of
an entity's commitment to an exit plan. This Statement also revises the
definition of exit costs and established that fair value is the objective for
initial measurement of the liability.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statement 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.
This Statement 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. This Statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
Management is still assessing whether this Statement will have a material effect
on the Company's financial position or results of operation.

         In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others as Interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB Interpretation No. 34." This Interpretation
elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognitions and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on the Company's financial statements.

                                      F-49
Management is currently evaluating the impact that the adoption of the
above-mentioned statements will have on the 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 IAS
and U.S. GAAP:
CONDENSED, COMBINED AND CONSOLIDATED
                                                                                    BALANCE SHEETS

                                                                                      DECEMBER 31,
                                                                                      ------------
                                                                              2001                   2002
                                                                              ----                   ----
Total current assets...............................................      $      290,801         $      265,250
Due from Mexican Government .......................................              81,892
Long-term account receivable.......................................                                      1,388
Concession rights and related assets - Net.........................           1,257,591              1,215,487
Property, machinery and equipment - Net............................             568,755                638,716
Deferred income taxes and employees' statutory profit sharing......              55,775                163,822
Other non-current assets...........................................              17,334                 41,850
                                                                         --------------         --------------
          Total assets.............................................      $    2,272,148         $    2,326,513
                                                                         ==============         ==============

Total short-term liabilities.......................................      $      381,459         $      147,295
Total long-term liabilities........................................             594,629              1,045,287
                                                                         --------------         --------------
          Total liabilities........................................             976,088              1,192,582
                                                                         --------------         --------------
Minority interest..................................................             380,719                348,059
                                                                         --------------         --------------

Capital stock......................................................             807,008                807,008
                                                                         --------------
Treasury Shares....................................................                                   (204,904)
Effect on purchase of subsidiary shares............................              17,912                (17,115)
Retained earnings..................................................              90,421                200,883
                                                                         --------------         --------------
          Total stockholders' equity...............................             915,341                785,872
                                                                         --------------         --------------
          Total liabilities and stockholders' equity...............      $    2,272,148         $    2,326,513
                                                                         ==============         ==============
CONDENSED, COMBINED AND CONSOLIDATED
                                                                           STATEMENTS OF INCOME

                                                                        YEAR ENDED DECEMBER 31,
                                                                        -----------------------
                                                                    2000          2001          2002
                                                                    ----          ----          ----
Transportation revenues ......................................   $  695,425    $  720,627    $  712,140
Total operating expenses .....................................      550,350       521,115       540,617
                                                                 ----------    ----------    ----------
Operating income .............................................      145,075       199,512       171,523
Other income (expenses) - Net ................................        1,629       (17,587)      (12,358)
Comprehensive financing cost .................................     (103,850)      (80,649)     (113,226)
                                                                 ----------    ----------    ----------
Income before provision for deferred income taxes, minority
     interest and extraordinary item .........................       42,854       101,276        45,939
Current income tax ...........................................                        (79)
Deferred income tax benefit (expense) ........................       16,446        (9,252)       91,505
Minority interest ............................................      (10,713)      (18,384)      (27,260)
                                                                 ----------    ----------    ----------
Income before extraordinary item .............................       48,587        73,561       110,184
Extraordinary item, net of taxes .............................       (5,075)
                                                                 ----------    ----------    ----------
Net income for the year ......................................   $   43,512    $   73,561    $  110,184
                                                                 ==========    ==========    ==========
F-50
NOTE 12 -- SUBSEQUENT EVENTS (UNAUDITED)

         On April 21, 2003, Grupo TMM and KCS announced a series of agreements
that have been approved by their respective boards of directors, that will,
following shareholder and regulatory approval, place the Kansas City Southern
Railway Company ("KCSR"), the Texas Mexican Railway Company ("Tex-Mex"), and
TFM, under the common control of a single transportation holding company, NAFTA
Rail, to be headquartered in Kansas City, Missouri. As part of the transaction
KCS will change its name to NAFTA Rail, which will trade on the New York Stock
Exchange ("NYSE").

         The common control of KCSR and Tex-Mex under NAFTA Rail, would require
approval of the U.S. Surface Transportation Board. Additionally, the acquisition
of Grupo TFM shares by NAFTA Rail would require the approval of the Competition
Commission and the Foreign Investment Commission in Mexico.

         Under the Grupo TFM acquisition agreement, TMM Multimodal, a subsidiary
of Grupo TMM, will receive 18 million shares of NAFTA Rail representing
approximately 22 percent (20% voting, 2% subject to voting restrictions) of
NAFTA Rail, $200 million in cash and a potential incentive payment of between
$100 million and $180 million based on the resolution on the resolution of
certain future contingencies (i.e., the VAT claim).

         On May 9, 2003, TFM sold 51% interest in Mexrail and its wholly-owned
subsidiary, the Tex-Mex Railway Company, to KCS for $32.6 million. The Mexrail
stock sold will 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 this agreement, TFM shall retain the right to repurchase all of the
shares from KCS at any time for an amount equal to the purchase price. Such
right shall be unconditional and may 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. Proceeds from the sale were re-invested
in TFM.

                                      F-51
EXHIBIT INDEX

EXHIBIT
 NUMBER                                EXHIBIT
 ------                                -------

  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.

  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.

  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).

  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).
EXHIBIT
 NUMBER                                EXHIBIT
 ------                                -------

  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.

  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.

  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).

                                       -2-
EXHIBIT
 NUMBER                                EXHIBIT
 ------                                -------

  4.11*        Amendment, dated as of April 30, 2002, to the TMM Management
               Services Agreement.

  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).

  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 21, 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. 333-99075).

  12.1*        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.

                                       -3-