At least one business seems to be motoring along despite the pandemic: Thor Industries ($THO), maker of RVs and related motorhomes, which apparently are more popular these days since nobody is flying.

Thor filed its annual report on Sept. 28, and compared to 2019 the numbers on the income statement all seem respectable. Sales, gross profits, pre-tax income, and net income were all higher for Thor’s fiscal year that ended on July 31.

Meanwhile, the numbers in the footnotes (read the footnotes, people!) tell a somewhat quirky tale that offers plenty of food for thought.

Segment revenue. Yes, total revenue for Thor rose 3.8 percent, from $7.86 billion in 2019 to $8.17 billion this year — but North America sales actually fell, from $6.2 billion to $5.5 billion. Revenue growth came entirely from the European market, where sales soared by $1 billion. See Figure 1, below.

Also interesting to see that while sales rose year-over-year, 2020 sales were still considerably lower than what Thor saw in 2018. Moreover, that growth in Europe revenue comes from the acquisition of a large European RV maker, which Thor acquired in February 2019. So this isn’t a story of an RV firm prevailing over the pandemic; it’s the story of an RV firm trying to regain prior success after an awful prior year.

Dealers and inventory. Thor also tells an interesting story about the inventory of its RVs held by dealers. For example, earlier this spring Thor shut down its manufacturing plants during the pandemic. With no new RVs rolling out of the plants, the inventory dealers had on site then started to fall (because they had no new RVs to replenish old RVs they had sold).

The practical upshot: the backlog of orders for Thor RVs has soared. As the company describes it:

Thor’s North American RV backlog as of July 31, 2020 increased $3,063,316, or 265.9%, to $4,215,319 compared to $1,152,003 as of July 31, 2019... In recent periods, dealer inventory levels have decreased materially based on recent production interruptions from March through May 2020 due to the COVID-19 pandemic, coupled with strong retail demand for RVs given the perceived safety of RV travel during the COVID-19 pandemic, a strong desire to socially distance and the reduction in commercial air travel and cruises.

Thor then goes on to cite rosy predictions for industry sales in 2021. The RV trade association projects unit shipments (that is, wholesale RV sales to dealers) to rise as much as 19.5 percent next year.

So far, so good. Then we noticed...

Repurchase obligations. Along with those shipments and sales to dealers, Thor also extends repurchase agreements for unsold inventory if a dealer goes into default with its bankers.

Hmmm. Now we’re into contingent liability territory.

Thor first mentions that concern in its disclosure of Risk Factors, blandly stating: “We may incur larger-than-average repurchase obligations if there is an increase in the number of financing defaults by our independent dealers.”

Well, what does that mean? How large a potential liability are we talking about?

Thankfully, the disclosures also include a section for contingent liabilities. There, we can see that those liabilities have trended downward over the last year:

The Company’s total commercial commitments under standby repurchase obligations on dealer inventory financing as of July 31, 2020 and July 31, 2019 were $1,876,922 and $2,961,019, respectively. The commitment term is generally up to eighteen months.

Thor goes on to explain that it covers such liabilities by deferring a portion of each sale and stashing that money in a reserve account. As of July 31, 2020, that reserve had $7.7 million, down from $9.5 million the prior year.

So there you have it: a respectable income statement from Thor, but also a much more complex picture once you start digging into the data. Perhaps we’ll send an update as the Calcbench team drives cross-country in our company Airstream.