SECOND QUARTER 2004 OPERATIONAL RESULTS

Consolidated net revenue for the three months ended June 30, 2004, was $ 184.9 million, which represents an increase of $8.3 million, or 4.7 percent, from revenue of $176.6 million for the same period in 2003. Improved revenue resulted mainly from an increase in volume of 8.0 percent in general cargo, driven by truck-to-rail conversion and economic recovery in the Chemicals and Petrochemicals and Metals and Minerals segments, and improved Mexrail revenue of $0.9 million. A decrease of 7.0 percent in automotive industry volume, intermodal traffic that was flat for the quarter, and an 8.7 percent devaluation of the peso, which had a $7.6 million effect on revenue, offset improved revenue in the quarter.

Consolidated operating profit for the second quarter of 2004 was $37.3 million, representing an increase of $1.2 million from the second quarter of 2003. The operating ratio (operating expenses as a percentage of revenue) for the second quarter of 2004 was 79.8 percent including Mexrail operations and 77.3 percent without Mexrail operations. Operating expenses were impacted by increased fuel prices of $3.8 million and by higher Tex Mex costs, other than fuel, of $0.8 million. Operating expenses were also impacted in the period by $3.0 million higher casualty and insurance expenses due to the recovery of credits and casualty in the second quarter of 2003. Mexrail operating loss for the second quarter of 2004 was $1.0 million.


FIRST SIX MONTHS 2004 OPERATIONAL RESULTS

Consolidated net revenue for the six months ended June 30, 2004, was $352.4 million, which represented an increase of $7.3 million, or 2.1 percent, from the six months ended June 30, 2003. During the first half of 2004, revenue was negatively impacted by approximately $6.5 million related to the downturn in the automotive segment, and by approximately$ 7.2 million effect on revenue due to depreciation of the peso. These negative effects were offset by the Company’s truck-to-rail conversion efforts, and recovery in the chemical and petrochemical industry, steel and other segments, which overall generated an increase in volume of 5.7 percent over the same period of 2003.

Operating profit for the six months ended June 30, 2004, was $63.1 million, resulting in an operating ratio of 82.1 percent with Mexrail and 79.4 percent without Mexrail. Operating results were impacted in the period by improved revenue; an increase of $5.9 million in fuel expense over the same period of 2003, which represented 10.8 percent of revenue; and higher insurance and casualty related costs when compared with the 2003 first half.

FINANCIAL EXPENSES

Net financial expenses incurred in the six months ended June 30, 2004, were $55.7 million, including $4.1 million in foreign exchange loss resulting from the depreciation of the Mexican peso relative to the U.S. dollar.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2004, accounts receivable had decreased to $184.5 million from $ 192.3 million at December 31, 2003.

TFM made capital expenditures of $12.7 million and $24.3 million during the second quarter of and first six months 2004 respectively, investing in the improvement of TFM and Mexrail lines.

As of June 30, 2004, TFM had an outstanding debt balance of $933.6 million, including $69.9 million of short-term and $863.7 million of long-term debt. Debt included $186.4 million in an amended term loan.


RECENT EVENTS

VAT LAWSUIT
On January 19, 2004, the Mexican Treasury delivered to TFM a VAT Certificate representing the historical claim amount of approximately $195 million as of that date, but excluding additional amounts due to TFM from the effect of inflation and interest accrued on the original claim amount. On January 20, 2004, the Mexican Fiscal Administration Service placed an attachment to the VAT Certificate, stating that the documents that support the value of the VAT Certificate do not comply with applicable tax requirements.

As reported previously, TFM has not yet received an official decision from the Fiscal Court regarding the claim the company filed requesting to compel the government to reissue its Special Certificate to include inflation and accrued interest. The Company has knowledge that the Fiscal Court voted against TFM’s claim. Once TFM is notified, the Company will bring to the Federal Court all proper petitions and protections, which support its rights and are consistent with the rulings of the Federal Court over the past year. The Company believes that TFM’s claim to have the VAT certificate updated for interest and inflation accruals will be upheld by Mexico’s legal system. Details on the VAT litigation can be found in previous Company filings and quarterly reports.

GRUPO TFM PUT
As previously stated, Grupo TFM also requested and received from a federal judge an injunction, which blocked the government from exercising its put option. The ability of the Mexican government to exercise its put option has been suspended indefinitely until the put lawsuit is resolved.

Grupo TFM acknowledges its intention to acquire the equity interest that the Mexican government holds in TFM and has informed the government of its intention to comply once the pending steps from the original Agreement are completed, which should occur after the VAT claim has been reimbursed to TFM according to the provisions of the law to determine the real value of the shares.


DEBT REFINANCING

On June 24 the Company refinanced its term loan and Commercial Paper program under one single term loan and extended the final maturity date to September 2006. Amounts outstanding under the amended term loan facility are secured by a first priority conditional pledge on the locomotives and other rolling stock owned by TFM's subsidiary, Arrendadora TFM, S.A. de C.V.

The amended term loan facility contains customary covenants, including limitations on dividends, investments, prepayments of other indebtedness, sale and leaseback transactions, asset sales, the incurrence of indebtedness, and affiliate transactions. Under the amended term loan facility, TFM is also subject to various financial covenants, including maintaining certain consolidated interest coverage, fixed charge coverage and leverage ratios. TFM is required to prepay the loan using excess cash flow or if it receives net proceeds from certain transactions.