##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
 For the quarterly period ended September 30, 2007
 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
    
    98-0460376(Jurisdiction of incorporation or organization)
    
    (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
  o þ o
 o þ
 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUERS CLASSES OF COMMON STOCK, AS OF NOVEMBER 6,
2007:




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##### 



ARLINGTON TANKERS LTD. AND SUBSIDIARIES
INDEX
 PART I:
    
    FINANCIAL INFORMATIONITEM 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended
September 30, 2007 and 2006Condensed Consolidated Statement of Shareholders Equity (unaudited) for the nine months ended
September 30, 2007Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September
30, 2007 and 2006Notes to Condensed Consolidated Financial Statements (unaudited)ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 3.
    
    Quantitative and Qualitative Disclosures About Market RiskITEM 4.
    
    Controls and ProceduresPART II:
    
    OTHER INFORMATIONITEM 1.
    
    Legal ProceedingsITEM 1A.
    
    Risk FactorsITEM 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsITEM 3.
    
    Defaults Upon Senior SecuritiesITEM 4.
    
    Submission of Matters to a Vote of Security HoldersITEM 5.
    
    Other InformationITEM 6.
    
    ExhibitsSIGNATURESEXHIBIT INDEXEx-10.1 2007 Bonus PlanEx-12.1 Ratio of Earnings to Fixed ChargesEx-31.1 Certification of CEO & CFOEx-32.1 Certification of CEO & CFO
  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)
 September 30,
    
    
    December 31,2007
    
    
    2006(UNAUDITED)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    3,761
    
    
    $
    3,210Short-term investments
    
    
    12,500
    
    
    
    13,000Other receivables
    
    
    432
    
    
    
    979Prepaid expenses and accrued income
    
    
    425
    
    
    
    208Total current assets
    
    
    17,118
    
    
    
    17,397NONCURRENT ASSETS:Vessels, net
    
    
    333,517
    
    
    
    344,973Deferred debt issuance costs, net
    
    
    777
    
    
    
    955Interest rate swap at fair value
    
    
    
    
    
    
    84Total noncurrent assets
    
    
    334,294
    
    
    
    346,012TOTAL ASSETS
    
    $
    351,412
    
    
    $
    363,409LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accrued expenses
    
    $
    1,118
    
    
    $
    1,028Unearned charter revenues
    
    
    2,261
    
    
    
    2,261Total current liabilities
    
    
    3,379
    
    
    
    3,289NONCURRENT LIABILITIES:Interest rate swap at fair value
    
    
    2,540
    
    
    
    Long-term debt
    
    
    229,500
    
    
    
    229,500TOTAL LIABILITIES
    
    
    235,419
    
    
    
    232,789SHAREHOLDERS EQUITY:Founder shares, $1.00 par value per share, 12,000 authorized, none issued or outstanding
    
    
    
    
    
    
    Preference shares, $0.01 par value per share, 4,000,000 authorized, none issued or
outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value per share; 60,000,000 authorized; 15,500,000 shares
issued and outstanding
    
    
    155
    
    
    
    155Additional paid-in capital
    
    
    115,879
    
    
    
    125,590(Accumulated deficit)/Retained earnings
    
    
    (41
    )
    
    
    4,875TOTAL SHAREHOLDERS EQUITY
    
    
    115,993
    
    
    
    130,620TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    351,412
    
    
    $
    363,409
 
 3




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ARLINGTON
TANKERS LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
 FOR THE THREE MONTHS
    
    
    FOR THE NINE MONTHSENDED SEPTEMBER 30,
    
    
    ENDED SEPTEMBER 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUES:
    
    $
    17,512
    
    
    $
    17,600
    
    
    $
    52,630
    
    
    $
    52,103OPERATING EXPENSES:Vessel operating expenses
    
    
    4,937
    
    
    
    4,578
    
    
    
    14,901
    
    
    
    13,826Depreciation
    
    
    3,861
    
    
    
    4,057
    
    
    
    11,456
    
    
    
    12,001General and administrative expenses
    
    
    564
    
    
    
    562
    
    
    
    1,707
    
    
    
    2,017TOTAL OPERATING EXPENSES
    
    
    9,362
    
    
    
    9,197
    
    
    
    28,064
    
    
    
    27,844OPERATING INCOME
    
    
    8,150
    
    
    
    8,403
    
    
    
    24,566
    
    
    
    24,259OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,452
    )
    
    
    (3,416
    )
    
    
    (10,244
    )
    
    
    (10,131
    )Interest income
    
    
    216
    
    
    
    244
    
    
    
    645
    
    
    
    517Unrealized gain (loss) on interest rate swap
    
    
    (4,955
    )
    
    
    (5,194
    )
    
    
    (2,624
    )
    
    
    1,944NET OTHER (EXPENSE)
    
    
    (8,191
    )
    
    
    (8,366
    )
    
    
    (12,223
    )
    
    
    (7,670
    )NET INCOME (LOSS)
    
    $
    (41
    )
    
    $
    37
    
    
    $
    12,343
    
    
    $
    16,589Earnings (loss) per common share, basic and diluted
    
    $
    (0.00
    )
    
    $
    0.00
    
    
    $
    0.80
    
    
    $
    1.07Weighted average shares outstanding, basic and diluted
    
    
    15,500,000
    
    
    
    15,500,000
    
    
    
    15,500,000
    
    
    
    15,500,000
 
 4




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ARLINGTON TANKERS LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(DOLLARS IN THOUSANDS)
(UNAUDITED)
 Common
    
    Paid-in
    
    RetainedStock
    
    Capital
    
    Earnings
    
    TotalBalance as of January 1, 2007
    
    $
    155
    
    
    $
    125,590
    
    
    $
    4,875
    
    
    $
    130,620Net income
    
    
    
    
    
    
    
    
    
    
    12,342
    
    
    
    12,342Cash dividends paid
    
    
    
    
    
    
    (9,711
    )
    
    
    (17,258
    )
    
    
    (26,969
    )Balance at September 30, 2007 (unaudited)
    
    $
    155
    
    
    $
    115,879
    
    
    $
    (41
    )
    
    $
    115,993
 
 5




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ARLINGTON TANKERS LTD. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
 FOR THE NINE MONTHSENDED SEPTEMBER 30,2007
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    12,343
    
    
    $
    16,589Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    11,456
    
    
    
    12,001Unrealized (gain) on interest rate swap
    
    
    2,624
    
    
    
    (1,944
    )Amortization of debt issuance costs
    
    
    178
    
    
    
    178CHANGE IN OPERATING ASSETS AND LIABILITIES:Other receivables
    
    
    (216
    )
    
    
    778Prepaid expenses and accrued income
    
    
    546
    
    
    
    (155
    )Accrued expenses and other current liabilities
    
    
    90
    
    
    
    (1,653
    )Net cash provided by operating activities
    
    
    27,021
    
    
    
    25,794INVESTING ACTIVITIES:Vessel acquisitions
    
    
    
    
    
    
    (92,000
    )Sale of short-term investments
    
    
    31,400
    
    
    
    15,900Purchase of short-term investments
    
    
    (30,900
    )
    
    
    (21,400
    )Net cash provided (used) by investing activities
    
    
    500
    
    
    
    (97,500
    )FINANCING ACTIVITIES:Proceeds from long-term debt
    
    
    
    
    
    
    94,500Dividend payments from retained earnings
    
    
    (17,258
    )
    
    
    (23,010
    )Dividend payments from paid in capital
    
    
    (9,712
    )
    
    
    (3,185
    )Net cash (used) provided by financing activities
    
    
    (26,970
    )
    
    
    68,305Net increase (decrease) in cash
    
    
    551
    
    
    
    (3,401
    )Cash and cash equivalents, beginning of period
    
    
    3,210
    
    
    
    11,839Cash and cash equivalents, end of period
    
    $
    3,761
    
    
    $
    8,438
  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
     Initial CharterVessel Type
    
    Year Built
    
    Dwt
    
    Date Acquired
    
    Expiration Date(1)V-MAXStena Victory
    
    
    2001
    
    
    
    314,000
    
    
    November 10, 2004
    
    November 9, 2009Stena Vision
    
    
    2001
    
    
    
    314,000
    
    
    November 10, 2004
    
    November 9, 2009PanamaxStena Companion
    
    
    2004
    
    
    
    72,000
    
    
    November 10, 2004
    
    November 9, 2008Stena Compatriot
    
    
    2004
    
    
    
    72,000
    
    
    November 10, 2004
    
    November 9, 2010ProductStena Concord
    
    
    2004
    
    
    
    47,400
    
    
    November 10, 2004
    
    November 9, 2008Stena Consul
    
    
    2004
    
    
    
    47,400
    
    
    November 10, 2004
    
    November 9, 2010Stena Concept
    
    
    2005
    
    
    
    47,400
    
    
    January 5, 2006
    
    January 4, 2009Stena Contest
    
    
    2005
    
    
    
    47,400
    
    
    January 5, 2006
    
    January 4, 2009
 
 (1)
    
    Each of the charters contains renewal options described in greater detail below.  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, 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
    
    
    20,043
 9




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Stena ConceptStena ContestPeriod
    
    (Product)January 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 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-month period, the Company would be eligible to earn Additional Hire in addition to Basic Hire.
If the Company extends the Charter for this 30-month period, the Company would not be eligible to
earn Additional Hire during this period. 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 if the Charterers exercises the option described in Footnote 1 above. The Company would
not be eligible to earn Additional Hire over the term of such extensions. There can be no
assurance that the Charterer will exercise any option.   
    
    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 sub-chartered 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 sub-chartered by the Charterer under a time charter.
  Stena
Victory Stena
Vision Stena Vision
 Stena
Victory Stena Vision
 10




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Stena Victory Stena Vision Stena Vision
 Stena Victory Stena Vision
     11




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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, 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 (1)
    
    
    9,116
    
    
    
    6,989
    
    
    
    6,989
    
    
    
    6,442
    
    
    
    6,442Nov. 11, 2009  Nov. 10, 2010 (2)
    
    
    9,572
    
    
    
    7,339
    
    
    
    7,339
    
    
    
    6,764
    
    
    
    6,764Nov. 11, 2010  Nov. 10, 2011 (3)
    
    
    10,051
    
    
    
    7,706
    
    
    
    7,706
    
    
    
    7,103
    
    
    
    7,103Nov. 11, 2011  Nov. 10, 2012
    
    
    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.  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 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. If the Company extends the Charter for this 30-month
period, the Company would not be eligible to earn Additional Hire during this period. There can be no assurance that
the Charterer will exercise any option. 12




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(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. The Company will not be eligible to receive Additional Hire over these periods.
There can be no assurance that the Charterer will exercise any option.   2. ACCOUNTING POLICIES
 Basis of accounting and presentation
  Cash and cash equivalents and short-term investments
  Drydocking
 Stena Concept Stena Contest
 13




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Estimates and concentrations
   Fair value of financial instruments
 .
 Earnings per share
  Distributions to shareholders
  3. RECENTLY ISSUED ACCOUNTING STANDARDS
    14




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4. CHARTER REVENUES
 Stena Victory Stena Vision Stena Victory Stena Vision
 Minimum FutureYear
    
    Charter Revenue(In thousands of $)2007 (October 1 through December 31)
    
    
    17,4112008
    
    
    68,2442009
    
    
    39,0242010
    
    
    12,081
 5. OTHER RECEIVABLES
 September 30,
    
    December 31,2007
    
    2006(In thousands of $)Additional hire revenue due from Stena/Concordia
    
    $
    433
    
    
    $
    979$
    433
    
    
    $
    979
  6. VESSELS, NET
 September 30,
    
    December 31,2007
    
    2006(In thousands of $)VesselsCost
    
    $
    402,426
    
    
    $
    402,426Accumulated depreciation
    
    
    (68,909
    )
    
    
    (57,453
    )Net book value at end of period
    
    
    333,517
    
    
    
    344,973Spare parts
    
    
    
    
    
    
    Vessels, net
    
    $
    333,517
    
    
    $
    344,973
  15




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DEFERRED DEBT ISSUANCE COST
  September 30,
    
    
    December 31,2007
    
    
    2006(In thousands of $)Debt arrangement fees
    
    $
    1,200
    
    
    $
    1,200Accumulated amortization
    
    
    (423
    )
    
    
    (245
    )Deferred debt issuance cost
    
    $
    777
    
    
    $
    955
 8. DEBT
 September 30,
    
    December 31,2007
    
    2006(In thousands of $)Secured credit facility
    
    $
    229,500
    
    
    $
    229,500Total debt
    
    $
    229,500
    
    
    $
    229,500
   9. FINANCIAL INSTRUMENTS
 Derivative instruments and hedging activities
   16




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Nine months ended
    
    Nine months endedSeptember 30, 2007
    
    September 30, 2006($ in thousands)Interest related to floating rate debt facility
    
    $
    10,630
    
    
    $
    9,908Interest (benefit) related to swap agreement
    
    
    (653
    )
    
    
    (44
    )Total interest incurred under debt facility and interest rate swap
    
    $
    9,977
    
    
    $
    9,864
   10. SHARE CAPITAL
   17




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11. COMMITMENTS AND CONTINGENCIES
 September 30,
    
    December 31,2007
    
    2006(In thousands of $)Ship mortgages
    
    $
    229,500
    
    
    $
    229,500
  th
 Year
    
    Minimum Future Vessel OperatingExpenses(In thousands of $)2007 (October 1 through December 31)
    
    
    4,9422008
    
    
    19,6312009
    
    
    10,7112010
    
    
    4,428
    12. RELATED PARTY TRANSACTIONS
   18




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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;
    
    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;
    
    the expected expiration dates of the Sun International sub-charters relating to our V-MAX
tankers and the commencement dates of the Eiger Shipping sub-charters relating to those
tankers.
    
    our ability to repay our secured credit facility at maturity, to obtain additional
financing and to obtain replacement charters for our Vessels.
   OVERVIEW
  19




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##### Table of Contents



Stena Concept Stena
Contest
   Initial CharterVessel Type
    
    Year Built
    
    Dwt
    
    Date Acquired
    
    Expiration Date(1)V-MAXStena Victory
    
    
    2001
    
    
    
    314,000
    
    
    November 10, 2004
    
    November 9, 2009Stena Vision
    
    
    2001
    
    
    
    314,000
    
    
    November 10, 2004
    
    November 9, 2009PanamaxStena Companion
    
    
    2004
    
    
    
    72,000
    
    
    November 10, 2004
    
    November 9, 2008Stena Compatriot
    
    
    2004
    
    
    
    72,000
    
    
    November 10, 2004
    
    November 9, 2010ProductStena Concord
    
    
    2004
    
    
    
    47,400
    
    
    November 10, 2004
    
    November 9, 2008Stena Consul
    
    
    2004
    
    
    
    47,400
    
    
    November 10, 2004
    
    November 9, 2010Stena Concept
    
    
    2005
    
    
    
    47,400
    
    
    January 5, 2006
    
    January 4, 2009Stena Contest
    
    
    2005
    
    
    
    47,400
    
    
    January 5, 2006
    
    January 4, 2009
 
 (1)
    
    Each of the charters contains renewal options described in greater detail below. 20




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##### Table of Contents



OUR CHARTERS
   Stena Consul Stena Compatriot Stena Concord Stena Companion
 Basic Hire Under Our Charters
   Stena Vision,
    
    Stena
    
    StenaStena Victory
    
    Compatriot
    
    Companion
    
    Stena Consul
    
    Stena ConcordPeriod
    
    (V-MAX)
    
    (Panamax)
    
    (Panamax)
    
    (Product)
    
    (Product)Nov. 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. 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 if either one of the Charterers exercises the option described in Footnote 1 above. We
would not be eligible to earn Additional Hire over the term of such extensions. There can be no
assurance that the Charterer will exercise any option. Additional Hire Under Our Charters
   
    
    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 sub-chartered 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 sub-chartered by the Charterer under a time charter.
  22




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##### Table of Contents



Stena Victory Stena Vision Stena Vision
 Stena
Victory Stena Vision Stena Victory Stena Vision Stena
Vision
 Stena Victory Stena Vision
 OUR SHIP MANAGEMENT AGREEMENTS
    23




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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, 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 (1)
    
    
    9,116
    
    
    
    6,989
    
    
    
    6,989
    
    
    
    6,442
    
    
    
    6,442Nov. 11, 2009  Nov. 10, 2010 (2)
    
    
    9,572
    
    
    
    7,339
    
    
    
    7,339
    
    
    
    6,764
    
    
    
    6,764Nov. 11, 2010  Nov. 10, 2011 (3)
    
    
    10,051
    
    
    
    7,706
    
    
    
    7,706
    
    
    
    7,103
    
    
    
    7,103Nov. 11, 2011  Nov. 10, 2012
    
    
    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.  Stena ConceptStena ContestPeriod
    
    (Product)January 5, 2006  January 4, 2007
    
    $
    5,565January 5, 2007  January 4, 2008
    
    
    5,843
 24




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##### Table of Contents



Stena ConceptStena ContestPeriod
    
    (Product)January 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 Charterer 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. If the Company extends the Charter for this 30-month period,
the Company would not be eligible to earn Additional Hire during this period. 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 if the option described in Footnote 1 above is exercised. We will not be
eligible to receive Additional Hire over these periods. There can be no assurance that
the Charterer will exercise any option.   DIVIDEND POLICY
    25




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##### Table of Contents




    
    the Basic Hire is paid on all of our Vessels, all of our Vessels are on hire for 360
days per fiscal year and the options to extend the charters are exercised by the
Charterers;
    
    no Additional Hire is paid on our two Panamax Tankers or our two Product Tankers that
are eligible to earn Additional Hire other than the $1.7 million earned in the first nine
months of 2007;
    
    the guaranteed Additional Hire is paid based on the two sub-charters with Sun
International, one of which expired on October 20, 2007 and the second of which is
expected to expire within 30 days of July 31, 2008;
    
    Additional Hire of approximately $350,000 per Vessel per quarter is paid on the V-MAX
Vessels upon commencement of the Eiger Shipping sub-charters, assuming that the V-MAX
Vessels operate for 90 days per quarter;
    
    the V-MAX Vessels are returned on the notional termination dates of the sub-charter
within the 60-day delivery window;
    
    we have no cash expenses or liabilities other than the ship management agreements, our
current directors fees, the current salaries and benefits of our employees, currently
anticipated administrative and other expenses and interest under our secured term loan
facility;
    
    we pay no U.S. federal income taxes and minimal U.S. and state payroll taxes;
    
    we have no requirement to fund any required capital expenditures with respect to our
Vessels;
    
    we do not suffer the loss or constructive loss of any of our Vessels;
    
    no material cash reserves or requirements are established by the actions of our Board
of Directors or management;
    
    we remain in compliance with our secured term loan facility which requires, among other
things, that the fair 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;
and
    
    we do not issue any additional common shares or other securities or borrow any
additional funds.
  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 the list of assumptions set forth above. 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, 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 re-charter our Vessels profitably after they expire, unless they are extended at the option of
the Charterers.
  26




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##### Table of Contents




    
    the amount of cash that was available for dividends in the fiscal year ended
December 31, 2006; and
    
    based on the assumptions and the other matters in the preceding paragraphs, our
estimate of the amount of cash likely to be available for dividends for each of
the 2007, 2008 and 2009 fiscal years.
 2006
    
    2007
    
    2008
    
    2009(In millions of dollars, exceptper share amounts)Basic Hire(1)
    
    $
    64.3
    
    
    $
    66.0
    
    
    $
    66.2
    
    
    $
    65.3V-MAX Additional Hire  Sun International sub-charters(2)
    
    
    2.4
    
    
    
    1.9
    
    
    
    0.5
    
    
    
    V-MAX Additional Hire  Eiger Shipping sub-charters(3)
    
    
    
    
    
    
    0.4
    
    
    
    2.2
    
    
    
    2.5Additional Hire  Panamax and Product tankers(4)
    
    
    2.7
    
    
    
    1.7
    
    
    
    
    
    
    
    Vessel operating expenses
    
    
    (18.6
    )
    
    
    (20.0
    )
    
    
    (20.3
    )
    
    
    (21.2
    )Cash administrative expenses(5)
    
    
    (2.7
    )
    
    
    (2.0
    )
    
    
    (2.4
    )
    
    
    (2.5
    )Cash interest costs(6)
    
    
    (12.0
    )
    
    
    (12.0
    )
    
    
    (12.3
    )
    
    
    (12.3
    )Cash available for dividends
    
    
    36.1
    
    
    
    36.0
    
    
    
    33.9
    
    
    
    31.8Estimated dividends per share(7)
    
    $
    2.33
    
    
    $
    2.32
    
    
    $
    2.19
    
    
    $
    2.05
 
 (1)
    
    Basic Hire revenues for 2008 and 2009 assume that options available under the charter
contracts are exercised by the Charterer. Basic Hire reflected in the above table
includes $700,000 of revenue in 2008 and $28.8 million of revenue in 2009 arising from
such option exercises.(2)
    
    The Additional Hire revenue associated with the Sun International sub-charters is
guaranteed, meaning that we will be paid the Additional Hire revenue by Concordia whether
the two V-MAX tankers are in service or not in service, during the terms of the Sun
International sub-charters. The sub-charter with Sun International for the Stena Victory
expired on October 20, 2007 and the sub-charter with Sun International for the Stena
Visionis due to expire within 30 days of July 31, 2008. Our estimate above reflects
guaranteed V-MAX Additional Hire revenue from Sun International sub-charters through
October 20, 2007 and July 31, 2008, respectively.(3)
    
    Immediately following the expiration of the sub-charter of the Stena Victorywith Sun
International, that Vessel commenced operating under a new sub-charter
agreement with Eiger Shipping. In addition, immediately following the expiration of the
sub-charter of the Stena Visionwith Sun International, we expect that Vessel to commence
operating under a new sub-charter agreement with Eiger Shipping. During the term of these
new sub-charters, we will continue to earn guaranteed Basic Hire from Concordia and we will
also earn Additional Hire under the profit sharing provisions of the Charters. Additional
Hire for the V-MAX tankers under the new sub-charters will be based on a fixed time charter
hire payable by Eiger Shipping to Concordia under the sub-charters and the Additional Hire
is not exposed to fluctuations in spot market rates. Additional Hire revenues under these
sub-charters are not guaranteed, meaning that we will earn Additional Hire only if the
Vessel is in service. The sub-charter for Eiger Shipping related to the Stena Victory
commenced on October 20, 2007. Our estimated cash available for dividends includes our
estimated Additional Hire for the Stena Victory, based on the October 20, 2007 commencement
date. Our estimated cash available for dividends includes our estimated Additional Hire for
the Stena Vision, assuming that the Eiger Shipping sub-charter for that Vessel begins on
August 1, 2008. While the V-MAX Vessels are sub-chartered to Eiger Shipping, the profit
sharing provisions in the Concordia charters are expected to result in Additional Hire
revenue of approximately $350,000 per Vessel per quarter, based on the time charter rates
under the sub-charters and assuming the Vessels operate 90 days per quarter, in addition to
the guaranteed Basic Hire.(4)
    
    Reflects Additional Hire revenues actually earned by our two Panamax tankers and our
two Product tankers that are eligible to earn Additional Hire. For the nine months ended
September 30, 2007, we have received $1.7 million of Additional Hire relating to these
four Vessels. No estimates have been made for the remainder of 2007, 2008 and 2009 as
these Additional Hire revenues are not contractually guaranteed via long-term
sub-charters.(5)
    
    General and administrative expenses for 2007 through 2009 do not include any cost for
executive bonuses, which are primarily performance based.(6)
    
    Cash interest costs reflect the benefit of approximately $1.0 million per year from
the 2005 termination of an interest rate swap. The interest expense for each year will be
approximately $13.3 million ($229.5 million at 5.7325%). Estimated interest expense for
2007 is shown net of interest income earned through September 30, 2007.(7)
    
    Based on 15,500,000 issued and outstanding common shares.  27




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006
 Total operating revenues
 Stena Victory
  28




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##### Table of Contents



Total vessel operating expenses
  Depreciation
  General and administrative expenses
  Net Other Income (Expense)
    NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2006
 Total operating revenues
  29




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##### Table of Contents



Total vessel operating expenses
  Depreciation
  General and administrative expenses
  Net Other Income (Expenses)
   30




---



##### Table of Contents



Liquidity and Capital Resources
         CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  31




---



##### Table of Contents



Revenue Recognition
  Vessels, Depreciation and Impairment
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   32




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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
    We are highly dependent on the Charterers and their guarantors, Stena and Concordia
  33




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##### Table of Contents



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 re-charter our Vessels profitably after their Charters expire, unless they
are extended at the option of the Charterers
      34




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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
  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
   35




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##### Table of Contents



Our operating income could fail to qualify for an exemption from U.S. federal income taxation,
which would reduce our cash flow
    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.
 36




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##### Table of Contents




    
    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.
   37




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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 can only 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.
  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
   38




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##### Table of Contents



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;
    
    restrictions on vessels from entering into certain trades based upon their age, safety or
other factors;
    
    the scrapping rate of older vessels; and
    
    the number of vessels that are out of service.
 An over supply of new vessels may adversely affect charter rates and vessel values
  39




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##### Table of Contents



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 secured term loan 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
  40




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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.
  41




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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.
  42




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##### Table of Contents



Item 6. Exhibits.
 (A)
    
    Exhibits:
 ExhibitNumber
    
    Description of Exhibit(1)10.1
    
    2007 Bonus Plan, as amended12.1
    
    Statement re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer and 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 adopted pursuant to Section
906 of the Sarbanes Oxley Act of 2002
 
 (1)
    
    Unless otherwise noted, each exhibit is filed herewith. 43




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##### Table of Contents



SIGNATURES
  ARLINGTON TANKERS LTD.By:
    /s/ Edward TerinoName:
    Edward TerinoTitle:
    Chief Executive Officer and Chief Financial Officer  44




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit(1)10.1
    
    2007 Bonus Plan, as amended12.1
    
    Statement re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer and 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 adopted pursuant to Section
906 of the Sarbanes Oxley Act of 2002
 
 (1)
    
    Unless otherwise noted, each exhibit is filed herewith. 45