##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
 For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
 For the period from  to
 Commission file number: 001-32343
 Arlington Tankers Ltd.
 (Exact name of Registrant as specified in its charter)
 Bermuda(Jurisdiction of incorporation or organization)
    
    98-0460376(I.R.S. Employer Identification No.)
 First Floor, The Hayward Building
22 Bermudiana Road
Hamilton HM 11, Bermuda  (Address of principal executive offices)
 (441) 292-4456
 Not applicable.
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
  o þ
 THE
NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUERS CLASSES OF
COMMON STOCK, AS OF MAY 9, 2006:




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##### 



ARLINGTON TANKERS LTD. AND SUBSIDIARIES
INDEX
 PagePART I: FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31,
2006 and 2005 (unaudited)
    
    
    4Condensed Consolidated Statement of Shareholders Equity for the three months ended March 31, 2006 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29ITEM 4. Controls and Procedures
    
    
    29PART II: OTHER INFORMATION
    
    
    30ITEM 1. Legal Proceedings
    
    
    30ITEM 1A. Risk Factors
    
    
    30ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39ITEM 3. Defaults Upon Senior Securities
    
    
    39ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    39ITEM 5. Other Information
    
    
    39ITEM 6. Exhibits
    
    
    39SIGNATURESEXHIBIT INDEXEX-31.1 SECTION 302 CERTIFICATION OF THE C.E.O.EX-31.2 SECTION 302 CERTIFICATION OF THE C.F.O.EX-32.1 SECTION 906 CERTIFICATION OF THE C.E.O & C.F.O.
  2




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##### Table of Contents



Item 1. Financial Statements
  ARLINGTON TANKERS LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 March 31,
    
    
    December 31,2006
    
    
    2005(UNAUDITED)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    10,913
    
    
    $
    11,839Short-term investments
    
    
    4,800
    
    
    
    2,500Other receivables
    
    
    1,399
    
    
    
    1,601Prepaid expenses and accrued income
    
    
    279
    
    
    
    283Total current assets
    
    
    17,391
    
    
    
    16,223NONCURRENT ASSETS:Vessels, net
    
    
    357,054
    
    
    
    269,031Deferred debt issuance costs
    
    
    1,135
    
    
    
    1,193Interest rate swap agreement at fair value
    
    
    2,022
    
    
    
    Total noncurrent assets
    
    
    360,211
    
    
    
    270,224TOTAL ASSETS
    
    $
    377,602
    
    
    $
    286,447LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accrued expenses
    
    $
    671
    
    
    $
    2,399Unearned charter revenues
    
    
    2,165
    
    
    
    2,237Total current liabilities
    
    
    2,836
    
    
    
    4,636NONCURRENT LIABILITIES:Interest rate swap agreement at fair value
    
    
    
    
    
    
    2,160Long-term debt
    
    
    229,500
    
    
    
    135,000TOTAL LIABILITIES
    
    
    232,336
    
    
    
    141,796SHAREHOLDERS EQUITY:Preference shares, $0.01 par value per
share, authorized 4,000,000, none issued
or outstanding at March 31, 2006 and
December 31, 2005
    
    
    
    
    
    
    Common stock, $0.01 par value per share;
authorized 60,000,000 shares at March 31,
2006 and at December 31, 2005; issued and
outstanding 15,500,000 and 15,500,000
shares at March 31, 2006 and December 31,
2005, respectively
    
    
    155
    
    
    
    155Additional paid-in capital
    
    
    136,281
    
    
    
    138,038Retained earnings
    
    
    8,830
    
    
    
    6,458Total shareholders equity
    
    
    145,266
    
    
    
    144,651TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    377,602
    
    
    $
    286,447
  3




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ARLINGTON TANKERS LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
 FOR THE THREE MONTHSENDED MARCH 31,2006
    
    
    2005REVENUES
    
    $
    17,244
    
    
    $
    14,292OPERATING EXPENSES:Vessel operating expenses
    
    
    4,722
    
    
    
    3,339Depreciation
    
    
    3,977
    
    
    
    3,098General and administrative expenses
    
    
    741
    
    
    
    420TOTAL OPERATING EXPENSES
    
    
    9,440
    
    
    
    6,857OPERATING INCOME
    
    
    7,804
    
    
    
    7,435OTHER INCOME/(EXPENSE):Interest expense
    
    
    (3,300
    )
    
    
    (1,661
    )Interest income
    
    
    144
    
    
    
    38Unrealized gain on interest rate swap
    
    
    4,182
    
    
    
    NET OTHER INCOME/(EXPENSE)
    
    
    1,026
    
    
    
    (1,623
    )NET INCOME
    
    $
    8,830
    
    
    $
    5,812OTHER COMPREHENSIVE INCOME:Net unrealized gain on interest rate swap
    
    
    
    
    
    
    2,990COMPREHENSIVE INCOME
    
    
    8,830
    
    
    
    8,802Earnings per common share, basic and diluted
    
    $
    0.57
    
    
    $
    0.37Weighted average shares outstanding, basic and diluted
    
    
    15,500,000
    
    
    
    15,500,000
  4




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ARLINGTON TANKERS LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(IN THOUSANDS)
(UNAUDITED)
 AccumulatedOtherCommon
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance as of January 1, 2006
    
    $
    155
    
    
    $
    138,038
    
    
    $
    6,458
    
    
    $
    
    
    
    $
    144,651Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    8,830
    
    
    
    
    
    
    
    8,830Comprehensive income
    
    
    
    
    
    
    
    
    
    
    8,830
    
    
    
    
    
    
    
    8,830Cash dividend paid
    
    
    
    
    
    
    (1,757
    )
    
    
    (6,458
    )
    
    
    
    
    
    
    (8,215
    )Balance at March 31, 2006
    
    $
    155
    
    
    $
    136,281
    
    
    $
    8,830
    
    
    $
    
    
    
    $
    145,266
  5




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##### Table of Contents



ARLINGTON TANKERS LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 FOR THE THREE MONTHSENDED MARCH 31,2006
    
    
    2005OPERATING ACTIVITIES:Net income
    
    $
    8,830
    
    
    $
    5,812Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    3,977
    
    
    
    3,098Unrealized (gain)/loss on interest rate swap
    
    
    (4,182
    )
    
    
    Amortization of debt issuance costs
    
    
    58
    
    
    
    41CHANGE IN OPERATING ASSETS AND LIABILITIES:Other receivables
    
    
    202
    
    
    
    263Prepaid expenses and accrued income
    
    
    4
    
    
    
    1,156Accrued expenses and other current liabilities
    
    
    (1,728
    )
    
    
    (617
    )Unearned revenues
    
    
    (72
    )
    
    
    (2,040
    )Net cash provided by operating activities
    
    
    7,089
    
    
    
    7,713INVESTING ACTIVITIES:Capital expenditures on vessels
    
    
    (92,000
    )
    
    
    Sale of short-term investments
    
    
    2,500
    
    
    
    Purchase of short-term investments
    
    
    (4,800
    )
    
    
    Net cash (used) by investing activities
    
    
    (94,300
    )
    
    
    FINANCING ACTIVITIES:Proceeds from long-term debt
    
    
    94,500
    
    
    
    Dividend payments from retained earnings
    
    
    (6,458
    )
    
    
    (4,290
    )Dividend payments from paid in capital
    
    
    (1,757
    )
    
    
    (1,755
    )Net cash provided (used) by financing activities
    
    
    86,285
    
    
    
    (6,045
    )Net increase (decrease) in cash
    
    
    (926
    )
    
    
    1,668Cash and cash equivalents, beginning of period
    
    
    11,839
    
    
    
    5,960Cash and cash equivalents, end of period
    
    $
    10,913
    
    
    $
    7,628
  6




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ARLINGTON TANKERS LTD. AND SUBSIDIARIES
 
 Notes to the Condensed Consolidated Financial Statements
(Unaudited)
 1. GENERAL
   Stena Concept Stena Contest
  7




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Stena Consul Stena Compatriot Stena Concord Stena Companion
     Vessel Type
    
    Year Built
    
    Dwt
    
    Flag
    
    Date AcquiredV-MAXStena Victory
    
    
    2001
    
    
    
    314,000
    
    
    Bermuda
    
    November 10, 2004Stena Vision
    
    
    2001
    
    
    
    314,000
    
    
    Bermuda
    
    November 10, 2004PanamaxStena Companion
    
    
    2004
    
    
    
    72,000
    
    
    Bermuda
    
    November 10, 2004Stena Compatriot
    
    
    2004
    
    
    
    72,000
    
    
    Bermuda
    
    November 10, 2004ProductStena Concord
    
    
    2004
    
    
    
    47,400
    
    
    Bermuda
    
    November 10, 2004Stena Consul
    
    
    2004
    
    
    
    47,400
    
    
    Bermuda
    
    November 10, 2004Stena Concept
    
    
    2005
    
    
    
    47,400
    
    
    Bermuda
    
    January 5, 2006Stena Contest
    
    
    2005
    
    
    
    47,400
    
    
    Bermuda
    
    January 5, 2006
    8




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##### Table of Contents



Stena Vision,
    
    Stena
    
    StenaStena Victory
    
    Compatriot
    
    Companion
    
    Stena Consul
    
    Stena ConcordPeriod
    
    (V-MAX)
    
    (Panamax)
    
    (Panamax)
    
    (Product)
    
    (Product)Nov. 11, 2005  Nov. 10, 2006
    
    $
    36,075
    
    
    $
    17,688
    
    
    $
    17,688
    
    
    $
    15,765
    
    
    $
    15,765Nov. 11, 2006  Nov. 10, 2007
    
    
    36,469
    
    
    
    17,989
    
    
    
    17,989
    
    
    
    16,043
    
    
    
    16,043Nov. 11, 2007  Nov. 10, 2008
    
    
    36,882
    
    
    
    18,306
    
    
    
    18,306
    
    
    
    16,335
    
    
    
    16,335Nov. 11, 2008  Nov. 10, 2009 (1)
    
    
    37,316
    
    
    
    18,639
    
    
    
    18,639
    
    
    
    16,642
    
    
    
    16,642Nov. 11, 2009  Nov. 10, 2010 (2)
    
    
    37,772
    
    
    
    18,989
    
    
    
    18,989
    
    
    
    16,964
    
    
    
    16,964Nov. 11, 2010  Nov. 10, 2011 (3)
    
    
    38,251
    
    
    
    19,356
    
    
    
    19,356
    
    
    
    17,303
    
    
    
    17,303Nov. 11, 2011  Nov. 10, 2012
    
    
    38,753
    
    
    
    19,741
    
    
    
    
    
    
    
    17,658
    
    
    
    Nov. 11, 2012  Nov. 10, 2013
    
    
    
    
    
    
    20,145
    
    
    
    
    
    
    
    18,031
    
    
    
    
 
 (1)
    
    This period is the first for which the Charterer has the option to extend the
charters for Stena Companionand Stena Concord. There can be no assurance that the Charterer will
exercise any option.(2)
    
    This period is the first for which the Charterer has the option to extend the
charters for the V-MAX Tankers, Stena Visionand Stena Victory. There can be no assurance that the
Charterer will exercise any option.(3)
    
    This period is the first for which the Charterer has the option to extend the
charters for Stena Compatriotand Stena Consul. There can be no assurance that the Charterer will
exercise any option.  Stena ConceptStena ContestPeriod
    
    (Product)January 5, 2006  January 4, 2007
    
    $
    19,765January 5, 2007  January 4, 2008
    
    
    20,043January 5, 2008  January 4, 2009
    
    
    20,335January 5, 2009  January 4, 2010 (1)
    
    
    17,942January 5, 2010  January 4, 2011
    
    
    18,264January 5, 2011  July 4, 2011
    
    
    18,603July 5, 2011  July 4, 2012 (2)
    
    
    21,158July 5, 2012  July 4, 2013
    
    
    21,531
 9




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(1)
    
    At the end of the initial fixed charter period expiring on January 4, 2009,
either the Company or the Charterers may extend the charters on a vessel-by-vessel basis for an
additional 30-month period expiring on July 4, 2011. If the Charterer extends the Charter for this
30-monthly period, the Company would be eligible to earn additional hire in addition to basic hire.(2)
    
    This period is the first for which the Charterer has the option to extend the
charters if either one of the Charter exercises the option described in Footnote 1 above.   
    
    a weighted average of the time charter hire per day received by the Charterer for any
periods during the calculation period, determined as described below, that the Initial
Vessel is subchartered by the Charterer under a time charter, less ship broker commissions
paid by the Charterer in an amount not to exceed 2.5% of such time charter hire and
commercial management fees paid by the Charterer in an amount not to exceed 1.25% of such
time charter hire; and
    
    the time charter equivalent hire for any periods during the calculation period that the
vessel is not subchartered by the Charterer under a time charter.
      10




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Stena Vision,
    
    Stena
    
    StenaStena Victory
    
    Compatriot
    
    Companion
    
    Stena Consul
    
    Stena ConcordPeriod
    
    (V-MAX)
    
    (Panamax)
    
    (Panamax)
    
    (Product)
    
    (Product)Nov. 11, 2005  Nov. 10, 2006
    
    $
    7,875
    
    
    $
    6,038
    
    
    $
    6,038
    
    
    $
    5,565
    
    
    $
    5,565Nov. 11, 2006  Nov. 10, 2007
    
    
    8,269
    
    
    
    6,339
    
    
    
    6,339
    
    
    
    5,843
    
    
    
    5,843Nov. 11, 2007  Nov. 10, 2008
    
    
    8,682
    
    
    
    6,656
    
    
    
    6,656
    
    
    
    6,135
    
    
    
    6,135Nov. 11, 2008  Nov. 10, 2009
    
    
    9,116
    
    
    
    6,989
    
    
    
    6,989
    
    
    
    6,442
    
    
    
    6,442Nov. 11, 2009  Nov. 10, 2010 (1)
    
    
    9,572
    
    
    
    7,339
    
    
    
    7,339
    
    
    
    6,764
    
    
    
    6,764Nov. 11, 2010  Nov. 10, 2011 (2)
    
    
    10,051
    
    
    
    7,706
    
    
    
    7,706
    
    
    
    7,103
    
    
    
    7,103Nov. 11, 2011  Nov. 10, 2012 (3)
    
    
    10,553
    
    
    
    8,091
    
    
    
    
    
    
    
    7,458
    
    
    
    Nov. 11, 2012  Nov. 10, 2013
    
    
    
    
    
    
    8,495
    
    
    
    
    
    
    
    7,831
    
    
    
    
 
 (1)
    
    This period is the first for which the Charterer has the option to extend
the charters for Stena Companion and Stena Concord. There can be no assurance that the Charterer
will exercise any option.(2)
    
    This period is the first for which the Charterer has the option to extend the
charters for the V-MAX Tankers. There can be no assurance that the Charterer will exercise any
option.(3)
    
    This period is the first for which the Charterer has the option to extend the
charters for Stena Compatriotand Stena Consul. There can be no assurance that the Charterer will
exercise any option.  Stena ConceptStena ContestPeriod
    
    (Product)January 5, 2006  January 4, 2007
    
    $
    5,565January 5, 2007  January 4, 2008
    
    
    5,843January 5, 2008  January 4, 2009
    
    
    6,135January 5, 2009  January 4, 2010 (1)
    
    
    6,442January 5, 2010  January 4, 2011
    
    
    6,764January 5, 2011  July 4, 2011
    
    
    7,103July 5, 2011  July 4, 2012 (2)
    
    
    7,458July 5, 2012  July 4, 2013
    
    
    7,831
 11




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##### Table of Contents



(1)
    
    At the end of the initial fixed charter period expiring on January 4,
2009, either the Company or the Charterers may extend the charters on a vessel-by-vessel
basis for an additional 30-month period expiring on July 4, 2011. If the Charterer extends
the charter for this 30-monthly period, the Company would be eligible to earn additional hire
in addition to basic hire.(2)
    
    This period is the first for which the Charterer has the option to extend
the charters if either one of the Charterers exercises the option described in Footnote 1
above.   2. ACCOUNTING POLICIES
 Basis of accounting and presentation
  Cash and cash equivalents and short-term investments
  Drydocking provisions
  12




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Estimates and concentrations
   Fair value of financial instruments
 .
 Earnings per share
  Distributions to shareholders
  3. RECENTLY ISSUED ACCOUNTING STANDARDS
  13




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Accounting for Conditional Asset Retirement Obligation
 4. CHARTER REVENUES
  Minimum FutureYear
    
    Charter Revenue(In thousands of $)2006
    
    $
    51,1432007
    
    
    67,6222008
    
    
    65,5482009
    
    
    36,5092010
    
    
    11,289
 5. OTHER RECEIVABLES
 March 31,
    
    
    December 31,2006
    
    
    2005(In thousands of $)Additional hire revenue due from Stena/Concordia
    
    $
    1,399
    
    
    $
    1,601$
    1,399
    
    
    $
    1,601
  6. VESSELS, NET
 March 31,
    
    
    December 31,2006
    
    
    2005(In thousands of $)VesselsCost
    
    $
    402,426
    
    
    $
    310,426Accumulated depreciation
    
    
    (45,372
    )
    
    
    (41,395
    )Net book value at end of year
    
    
    357,054
    
    
    
    269,031Spare parts
    
    
    
    
    
    
    Vessels, net
    
    $
    357,054
    
    
    $
    269,031
 14




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##### Table of Contents



DEFERRED DEBT ISSUANCE COST
  March 31,
    
    
    December 31,2006
    
    
    2005(In thousands of $)Debt arrangement fees
    
    $
    1,200
    
    
    $
    1,200Accumulated amortization
    
    
    (65
    )
    
    
    (7
    )Deferred debt issuance cost
    
    $
    1,135
    
    
    $
    1,193
 8. DEBT
 March 31,
    
    
    December 31,2006
    
    
    2005(In thousands of $)Secured credit facility
    
    $
    229,500
    
    
    $
    135,000Total debt
    
    $
    229,500
    
    
    $
    135,000
      15




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##### Table of Contents



9. FINANCIAL INSTRUMENTS
 Derivative instruments and hedging activities
         16




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March 31, 2006
    
    
    December 31, 2005(In thousands of $)Interest related to floating rate debt facility
    
    $
    2,960
    
    
    $
    5,861Interest related to fixed rate swap agreement
    
    
    254
    
    
    
    724Total interest incurred under debt facility and interest rate swap
    
    $
    3,214
    
    
    $
    6,585
    10. SHARE CAPITAL
  11. COMMITMENTS AND CONTINGENCIES
 March 31
    
    
    December 31,2006
    
    
    2005(In thousands of $)Ship mortgages
    
    $
    229,500
    
    
    $
    135,000
  th
 Minimum Future VesselYear
    
    Operating Expenses(In thousand of $)2006
    
    $
    13,6142007
    
    
    19,2972008
    
    
    19,6312009
    
    
    10,7112010
    
    
    4,428
 17




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##### Table of Contents



12. RELATED PARTY TRANSACTIONS
   13. SUBSEQUENT EVENTS
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results Of Operations
   
    
    future operating or financial results;
    
    future payments of quarterly dividends and the availability of cash for payment of quarterly dividends;
 18




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##### Table of Contents




    
    statements about future, pending or recent acquisitions, business strategy, areas of
possible expansion, and expected capital spending or operating expenses;
    
    statements about tanker market trends, including charter rates and factors affecting
vessel supply and demand;
    
    expectations about the availability of vessels to purchase, the time which it may take to
construct new vessels, or vessels useful lives; and
    
    our ability to repay our secured credit facility at maturity, to obtain additional
financing and to obtain replacement charters for our vessels.
        19




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Stena Concept Stena Contest
 Stena Consul Stena Compatriot Stena Concord Stena Companion
   Stena Concept Stena
Contest
  Vessel Type
    
    Year Built
    
    
    Dwt
    
    
    Flag
    
    
    Date AcquiredV-MAXStena Victory
    
    
    2001
    
    
    
    314,000
    
    
    Bermuda
    
    November 10, 2004Stena Vision
    
    
    2001
    
    
    
    314,000
    
    
    Bermuda
    
    November 10, 2004PanamaxStena Companion
    
    
    2004
    
    
    
    72,000
    
    
    Bermuda
    
    November 10, 2004Stena Compatriot
    
    
    2004
    
    
    
    72,000
    
    
    Bermuda
    
    November 10, 2004ProductStena Concord
    
    
    2004
    
    
    
    47,400
    
    
    Bermuda
    
    November 10, 2004
 20




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##### Table of Contents



Vessel Type
    
    Year Built
    
    
    Dwt
    
    
    Flag
    
    
    Date AcquiredStena Consul
    
    
    2004
    
    
    
    47,400
    
    
    Bermuda
    
    November 10, 2004Stena Concept
    
    
    2005
    
    
    
    47,400
    
    
    Bermuda
    
    January 5, 2006Stena Contest
    
    
    2005
    
    
    
    47,400
    
    
    Bermuda
    
    January 5, 2006
 Stena Consul Stena Compatriot Stena Concord Stena Companion
     Stena Vision,
    
    Stena
    
    StenaStena Victory
    
    Compatriot
    
    Companion
    
    Stena Consul
    
    Stena ConcordPeriod
    
    (V-MAX)
    
    (Panamax)
    
    (Panamax)
    
    (Product)
    
    (Product)Nov. 11, 2005  Nov. 10, 2006
    
    $
    36,075
    
    
    $
    17,688
    
    
    $
    17,688
    
    
    $
    15,765
    
    
    $
    15,765Nov. 11, 2006  Nov. 10, 2007
    
    
    36,469
    
    
    
    17,989
    
    
    
    17,989
    
    
    
    16,043
    
    
    
    16,043Nov. 11, 2007  Nov. 10, 2008
    
    
    36,882
    
    
    
    18,306
    
    
    
    18,306
    
    
    
    16,335
    
    
    
    16,335Nov. 11, 2008  Nov. 10, 2009 (1)
    
    
    37,316
    
    
    
    18,639
    
    
    
    18,639
    
    
    
    16,642
    
    
    
    16,642Nov. 11, 2009  Nov. 10, 2010 (2)
    
    
    37,772
    
    
    
    18,989
    
    
    
    18,989
    
    
    
    16,964
    
    
    
    16,964Nov. 11, 2010  Nov. 10, 2011 (3)
    
    
    38,251
    
    
    
    19,356
    
    
    
    19,356
    
    
    
    17,303
    
    
    
    17,303Nov. 11, 2011  Nov. 10, 2012
    
    
    38,753
    
    
    
    19,741
    
    
    
    
    
    
    
    17,658
    
    
    
    Nov. 11, 2012  Nov. 10, 2013
    
    
    
    
    
    
    20,145
    
    
    
    
    
    
    
    18,031
    
    
    
    
 
 (1)
    
    This period is the first for which the Charterer has the option to extend the
charters for Stena Companionand Stena Concord. There can be no assurance that the Charterer will
exercise any option.(2)
    
    This period is the first for which the Charterer has the option to extend the
charters for the V-MAX Tankers, Stena Visionand Stena Victory. There can be no assurance that the
Charterer will exercise any option.(3)
    
    This period is the first for which the Charterer has the option to extend the
charters for Stena Compatriotand Stena Consul. There can be no assurance that the Charterer will
exercise any option. 21




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##### Table of Contents



Stena ConceptStena ContestPeriod
    
    (Product)January 5, 2006  January 4, 2007
    
    $
    19,765January 5, 2007  January 4, 2008
    
    
    20,043January 5, 2008  January 4, 2009
    
    
    20,335January 5, 2009  January 4, 2010 (1)
    
    
    17,942January 5, 2010  January 4, 2011
    
    
    18,264January 5, 2011  July 4, 2011
    
    
    18,603July 5, 2011  July 4, 2012 (2)
    
    
    21,158July 5, 2012  July 4, 2013
    
    
    21,531
 
 (1)
    
    At the end of the initial fixed charter period expiring on January 4, 2009,
either we or the Charterers may extend the charters on a vessel-by-vessel basis for an additional
30-month period expiring on July 4, 2011. If the Charterer extends the Charter for this 30-monthly
period, we would be eligible to earn additional hire in addition to basic hire.(2)
    
    This period is the first for which the Charterer has the option to extend the
charters if either one of the Charter exercises the option described in Footnote 1 above.   
    
    a weighted average of the time charter hire per day received by the charterer for any
periods during the calculation period, determined as described below, that the Vessel is
subchartered by the charterer under a time charter, less ship broker commissions paid by the
charterer in an amount not to exceed 2.5% of such time charter hire and commercial
management fees paid by the charterer in an amount not to exceed 1.25% of such time charter
hire; and
    
    the time charter equivalent hire for any periods during the calculation period that the
vessel is not subchartered by the charterer under a time charter.
   22




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##### Table of Contents



Stena Vision,
    
    Stena
    
    StenaStena Victory
    
    Compatriot
    
    Companion
    
    Stena Consul
    
    Stena ConcordPeriod
    
    (V-MAX)
    
    (Panamax)
    
    (Panamax)
    
    (Product)
    
    (Product)Nov. 11, 2005  Nov. 10, 2006
    
    $
    7,875
    
    
    $
    6,038
    
    
    $
    6,038
    
    
    $
    5,565
    
    
    $
    5,565Nov. 11, 2006  Nov. 10, 2007
    
    
    8,269
    
    
    
    6,339
    
    
    
    6,339
    
    
    
    5,843
    
    
    
    5,843Nov. 11, 2007  Nov. 10, 2008
    
    
    8,682
    
    
    
    6,656
    
    
    
    6,656
    
    
    
    6,135
    
    
    
    6,135Nov. 11, 2008  Nov. 10, 2009
    
    
    9,116
    
    
    
    6,989
    
    
    
    6,989
    
    
    
    6,442
    
    
    
    6,442Nov. 11, 2009  Nov. 10, 2010 (1)
    
    
    9,572
    
    
    
    7,339
    
    
    
    7,339
    
    
    
    6,764
    
    
    
    6,764Nov. 11, 2010  Nov. 10, 2011 (2)
    
    
    10,051
    
    
    
    7,706
    
    
    
    7,706
    
    
    
    7,103
    
    
    
    7,103Nov. 11, 2011  Nov. 10, 2012 (3)
    
    
    10,553
    
    
    
    8,091
    
    
    
    
    
    
    
    7,458
    
    
    
    Nov. 11, 2012  Nov. 10, 2013
    
    
    
    
    
    
    8,495
    
    
    
    
    
    
    
    7,831
    
    
    
    
 
 (1)
    
    This period is the first for which the Charterer has the option to extend
the charters for Stena Companionand Stena Concord. There can be no assurance that the Charterer
will exercise any option.(2)
    
    This period is the first for which the Charterer has the option to extend the
charters for the V-MAX Tankers. There can be no assurance that the Charterer will exercise any
option.(3)
    
    This period is the first for which the Charterer has the option to extend the
charters for Stena Compatriotand Stena Consul. There can be no assurance that the Charterer will
exercise any option. 23




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##### Table of Contents



Stena ConceptStena ContestPeriod
    
    (Product)January 5, 2006  January 4, 2007
    
    $
    5,565January 5, 2007  January 4, 2008
    
    
    5,843January 5, 2008  January 4, 2009
    
    
    6,135January 5, 2009  January 4, 2010 (1)
    
    
    6,442January 5, 2010  January 4, 2011
    
    
    6,764January 5, 2011  July 4, 2011
    
    
    7,103July 5, 2011  July 4, 2012 (2)
    
    
    7,458July 5, 2012  July 4, 2013
    
    
    7,831
 
 (1)
    
    At the end of the initial fixed charter period expiring on January 4,
2009, either we or the Charterers may extend the charters on a vessel-by-vessel
basis for an additional 30-month period expiring on July 4, 2011. If the Charter
extends the Charter for this 30-monthly period, we would be eligible to earn
additional hire in addition to basic hire.(2)
    
    This period is the first for which the Charter has the option to extend
the charters if either one of the Charterers exercises the option described in
Footnote 1 above.   Dividend Policy
   24




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##### Table of Contents




    
    the basic hire is paid on all of our tankers and all of our tankers are on hire for 360 days per fiscal year;
    
    no additional hire is paid other than the additional hire based on the current sub-charters with Sun International;
    
    we have no cash expenses or liabilities other than the ship management agreements, our
current directors fees, the current salaries and benefits of our President and our Chief
Financial Officer, currently anticipated administrative and other expenses and interest
under our credit facility;
    
    we pay no U.S. federal income taxes and minimal U.S. state and payroll taxes or have to
fund any required capital expenditures with respect to our vessels;
    
    no cash reserves are established by our board of directors;
    
    we remain in compliance with our credit facility which requires, among other things,
that the market value of our vessels exceeds 140% of our borrowings under the facility (or
125% if the loan amount at the time of such dividend all of our vessels are on time charter
for a remaining period of at least 12 months) in order to pay dividends;
    
    we do not issue any additional common shares or other securities or borrow any additional funds; and
    
    the Charterers do not exercise any options to extend the terms of the Charters.
  We cannot assure you that our dividends will in fact be equal to the amounts set forth below.
The amount of future dividends set forth in the table below represents only an estimate of future
dividends based on our charter contracts, ship management agreements and an estimate of our other
expenses and assumes that none of our expenses materially increase during the periods set forth
below. The amount of future dividends, if any, could be affected by various factors, including the
loss of a vessel, required capital expenditures, cash reserves established by our board of
directors, increased or unanticipated expenses, inability to earn
additional hire revenue during off hire periods, a change in our dividend policy, increased
borrowings or future issuances of securities, many of which will be beyond our control. As a
result, the amount of dividends actually paid may vary from the amounts currently estimated and
such variations may be material. There can be no assurance that any dividends will be paid. See
Item 3.  Quantitative and Qualitative Disclosures about Market Risk  We cannot assure you that
we will pay any dividends and We may not be able to recharter our vessels profitably after they
expire, unless they are extended at the option of the Charterers.
  25




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##### Table of Contents



Fiscal Year EndingDecember 31,2006
    
    2007
    
    2008(In millions of $, exceptper share amounts)Basic Hire
    
    
    64.3
    
    
    
    65.0
    
    
    
    65.7V-MAX Additional Hire
    
    
    2.4
    
    
    
    1.0
    
    
    
    Vessel operating expenses
    
    
    (18.2
    )
    
    
    (18.9
    )
    
    
    (19.6
    )Cash Administrative expenses (1)
    
    
    (2.2
    )
    
    
    (2.2
    )
    
    
    (2.3
    )Cash interest cost (2)
    
    
    (12.3
    )
    
    
    (12.3
    )
    
    
    (12.3
    )Cash available for dividends
    
    
    34.0
    
    
    
    32.6
    
    
    
    31.5Estimated dividends per share(3)
    
    $
    2.19
    
    
    $
    2.10
    
    
    $
    2.03
 
 (1)
    
    Cash administrative expenses exclude approximately $300,000 that we expect to incur in 2006
related to the purchase of the two Additional Vessels and will be funded by our new $229.5
million term loan facility with the Royal Bank of Scotland plc.(2)
    
    Cash interest costs reflect the benefit of approximately $1 million per year from the 2005
termination of the Interest Rate Swap with Fortis Bank. The interest expense for each year
will be approximately $13.2 million ($229.5 million at 5.7325%).(3)
    
    Based on 15,500,000 issued and outstanding common shares.   Results of Operations
  THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2005
 Total operating revenues
   26




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##### Table of Contents



Total vessel operating expenses
  Depreciation
  General and administrative expenses
  Net Other Income
    Liquidity and Capital Resources
  27




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##### Table of Contents



Critical Accounting Policies and Estimates
  28




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##### Table of Contents



REVENUE RECOGNITION
  VESSELS, DEPRECIATION AND IMPAIRMENT
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
  29




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##### Table of Contents



PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Risk Factors
 The following important factors, among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this report or presented elsewhere by
management from time to time.
 Company Specific Risk Factors
 We cannot assure you that we will pay any dividends
  30




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##### Table of Contents



We are highly dependent on the Charterers and their guarantors, Stena and Concordia
  If we cannot refinance our loans, or in the event of a default under our secured term loan
facility, we may have to sell our vessels, which may leave no additional funds for distributions
to shareholders
   We may not be able to recharter our vessels profitably after they expire, unless they are
extended at the option of the Charterers
  31




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##### Table of Contents



Concordia and Stena are able to influence the Company, including the outcome of shareholder
votes
  We are leveraged and subject to restrictions in our financing agreements that impose constraints
on our operating and financing flexibility
   We are a holding company, and we depend on the ability of our subsidiaries to distribute funds
to us in order to satisfy our financial and other obligations
  32




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##### Table of Contents



U.S. tax authorities could treat us as a passive foreign investment company, which could have
adverse U.S. federal income tax consequences to U.S. shareholders
     Our operating income could fail to qualify for an exemption from U.S. federal income taxation,
which will reduce our cash flow
   33




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##### Table of Contents



U.S. investors who own our common shares may have more difficulty in protecting their interests
than U.S. investors who own shares of a Delaware corporation
  Interested Directors .
 
    
    the material facts as to such interested directors relationship or interests
were disclosed or were known to the board of directors and the board had in good
faith authorized the transaction by the affirmative vote of a majority of the
disinterested directors;
    
    such material facts were disclosed or were known to the stockholders entitled to
vote on such transaction and the transaction was specifically approved in good faith
by vote of the majority of shares entitled to vote thereon; or
    
    the transaction was fair as to the corporation as of the time it was authorized,
approved or ratified.
  Shareholders Suits .
    Indemnification of Directors .
  34




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##### Table of Contents



Bermuda law and our bye-laws permit our board of directors to establish preference shares having
terms which could reduce or eliminate dividends payable to our common shareholders
  Our bye-laws restrict shareholders from bringing certain legal action against our officers and
directors
  We have anti-takeover provisions in our bye-laws that may discourage a change of control
  
    
    a classified board of directors with staggered three-year terms, elected without
cumulative voting;
    
    directors only to be removed for cause and only with the affirmative vote of
holders of at least 80% of the common shares issued and outstanding;
    
    advance notice for nominations of directors by shareholders and for shareholders
to include matters to be considered at annual meetings;
    
    our board of directors to determine the powers, preferences and rights of our
preference shares and to issue the preference shares without shareholder approval;
and
    
    a requirement that amalgamations, sales of assets and certain other transactions
with persons owning 15% or more of our voting securities, which we refer to as
interested shareholders, be approved by holders of at least 66% of our issued and
outstanding voting shares not owned by the interested shareholder, subject to
certain exceptions.
  35




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##### Table of Contents



Industry Specific Risk Factors
 The highly cyclical nature of the tanker industry may lead to volatile changes in charter rates
and vessel values which may adversely affect our earnings
    Factors beyond our control may adversely affect the value of our vessels
  
    
    demand for oil and oil products, which affect the need for tanker capacity;
    
    global and regional economic and political conditions which among other things,
could impact the supply of oil as well as trading patterns and the demand for
various types of vessels;
    
    changes in the production of crude oil, particularly by OPEC and other key
producers, which impact the need for tanker capacity;
    
    developments in international trade;
    
    changes in seaborne and other transportation patterns, including changes in the
distances that cargoes are transported;
    
    environmental concerns and regulations;
    
    weather; and
    
    competition from alternative sources of energy.
  
    
    the number of newbuilding deliveries;
    
    the scrapping rate of older vessels; and
    
    the number of vessels that are out of service.
 36




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##### Table of Contents



An over supply of new vessels may adversely affect charter rates and vessel values
  Terrorist attacks and international hostilities can affect the tanker industry, which could
adversely affect our business
  The value of our vessels may fluctuate and adversely affect our liquidity and may result in
breaches under our credit facility
  We operate in the highly competitive international tanker market which could affect our position
if the Charterers do not renew our Charters
  Compliance with environmental laws or regulations may adversely affect our business
  37




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##### Table of Contents



The shipping industry has inherent operational risks, which may not be adequately covered by
insurance
   Maritime claimants could arrest our tankers, which could interrupt the Charterers or our cash
flow
  Governments could requisition our vessels during a period of war or emergency without adequate
compensation
  Rising or high oil prices may affect demand for oil, and subsequently demand for oil tankers may
fall.
  38




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##### Table of Contents



Risks Related To Our Common Shares
 If a significant number of our common shares are sold in the market, the market price of our
common shares could significantly decline, even if our business is doing well
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 (A)
    
    Exhibits:
 ExhibitNumber
    
    Description of Exhibit(1)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193432.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adapted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
 
 (1)
    
    Unless otherwise noted, each exhibit is filed herewith. 39




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##### Table of Contents



SIGNATURES
  ARLINGTON TANKERS LTD.By:
    
    /s/ Edward TerinoName: Edward TerinoTitle: Co-Chief Executive Officer and Chief Financial Officer
  40




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit(1)31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193432.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adapted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
 
 (1)
    
    Unless otherwise noted, each exhibit is filed herewith. 41