Washington -- They laid off cashiers and stock clerks and closed their stores in small-town Ohio.

It happened at the Piqua Mall store, north of Dayton, in September 1999.

In Delaware, north of Columbus, the only department store in town at the time was shuttered in July 2000.

And it happened in Port Clinton, Circleville, Mount Vernon, Fremont and everywhere else in Ohio where Stage Stores still operated. The chain specialized in small, under-served towns, with stores where teens could buy Levi's and bank tellers could get a tie, jacket or dress. But all 26 of its Ohio stores were gone by early 2001 -- due in part, if you believe the Democratic version of events, to the actions of Mitt Romney, who now wants to be the United States president.

His company made millions before pulling out and Stage Stores went bankrupt.

Romney, the presumptive Republican nominee, and his former firm, Bain Capital, reject this cause-and-effect version of events. They say that the store closings occurred several years after Romney and his firm ended their active involvement in Stage. When Romney's company had an active stake, they say, the chain expanded and did well.

The 2012 presidential race is expected to be a referendum in part on which candidate can best repair the American economy. Romney is running on his business record as well as his Massachusetts gubernatorial experience. So his business deals are ripe for examination, says the Obama campaign. And no deal is more central to the race for Ohio, an important swing state, than this one, it adds.

But a Plain Dealer review of U.S. Securities and Exchange Commission filings, court papers and press accounts from Stage Stores' troubled days, as well as recent interviews, suggests that the Stage Stores episode is less straight-forward than either candidate touts.

Boiled down, the story goes that Bain, the private-equity firm that Romney headed, got $300 million worth of junk bonds in 1988 to buy and merge two small department store chains in Texas. The newly created retail company, later renamed Stage Stores, spotted opportunity in small towns and eventually snapped up the Bowling Green-based Uhlman's chain as part of an aggressive expansion.

Bain eventually helped take Stage Stores public, and the chain's continuing growth fueled a rapid rise in its stock price. But Stage had a hard time managing its far-flung empire. Debt payments -- a liability that began when Bain created the chain -- were problematic when revenues faltered. Suppliers hesitated to replenish merchandise, fearing they might not get paid. Stage started shuttering stores and ultimately sought bankruptcy protection. By the time this was over, Stage had closed 331 stores, including all 26 in Ohio, and 5,794 employees lost their jobs chain-wide.

Yet Bain cashed out of most of its investment, earning a reported $175 million, before the retailer failed.

The Obama campaign says Bain can be directly linked to the job losses. Romney and Bain "acquired companies like Stage Stores in Ohio, aggressively loaded them up with debt, cashed them out quickly and watched them hit rock bottom while people lost their jobs," said Jessica Kershaw, the Ohio press secretary for Obama for America. "That's not an economic philosophy based on the belief that we should create an economy built to last."

Bain counters that it sold its controlling interest in Stage two years before the store closings began and three years before Stage filed for Chapter 11 bankruptcy protection. By then, Bain told The Plain Dealer in a prepared statement, "Bain Capital had no management control or board representation and was only a small public shareholder."

Furthermore, Romney's campaign says, Stage Stores doubled the number of stores and the size of its payroll, and raised revenue by 70 percent, when Bain was involved.

The bankruptcy occurred a dozen years after Bain put the original deal together, and the company "grew for years," said Romney spokesman Chris Maloney. Stage Stores' stock, he said, "peaked in 1998, a decade after the buyout, and a year after Bain sold its controlling interest."

Today, Stage Stores has reemerged with 25 stores in Ohio. Its renewed success has nothing to do with Bain and Romney.

Making the deal

Mitt Romney, a Harvard MBA and law grad, so impressed his bosses at Boston-based Bain & Co. that they interrupted his career as a management consultant and asked him at age 36 to start a new company. Called Bain Capital, it would invest its partners' and others' money in companies where it saw untapped potential or an opportunity to turn around or sell undervalued assets. Bain Capital would not just advise companies, it would invest in them or own them.

This was in 1984. Some of Bain Capital's subsequent deals involved the start-up of Staples, the office-supply chain, and successful investments in Brookstone, Domino's Pizza and Sports Authority. The Wall Street Journal examined 77 companies that Bain invested in when Romney ran the firm, and found that most succeeded.

But 22 percent ended in bankruptcy or closing within eight years of Bain's initial investment, and Bain lost its investment on 8 percent more.

The Stage Stores investment fits in another category. It was successful for Bain. And the company it helped start went bankrupt 12 years after Bain initially invested and three years after Bain exited.

The investment began with Bain's 1988 purchase of two Texas retailers, Palais Royal and Bealls. Bringing $10 million to the table and seeking to borrow $300 million more, Bain went to Drexel Burnham Lambert, headed by legendary junk bond financier Michael Milken.

Milken at the time was under investigation by the SEC for insider trading and stock manipulation, and this was widely known, according to the Boston Globe, which has reported extensively on the dealings of Romney, who later became Massachusetts' governor. But Bain was seeking a bond underwriter, not trading tips, and Bain proceeded with the financing despite Milken being charged in an SEC complaint just before the deal closed.

Romney later told the Globe, "We did not say, 'Oh my goodness, Drexel has been accused of something, not been found guilty.' Should we basically stop the transaction and blow the whole thing up?"

Bain worked with Drexel to get $300 million in high-interest, or so-called junk, bonds. Junk bonds carry high interest rates because of the risk of default. They cost the borrower more than a bank loan would but reward investors for accepting the risk. Later, the debt would be refinanced with other lenders and different terms, shrinking or growing depending on the year, the acquisition and the company's financial shape.

Bain initially combined Palais Royal and Bealls under the name Specialty Retailers, Inc., based in Houston. In 1992, the new company bought the 76-store Fashion Bar -- whose juniors stores were called Stage -- in Denver, and in 1994, 45 Beall-Ladymon stores.

It wasn't until the investment's eighth year, in June 1996, that the company expanded to Ohio, Michigan and Indiana by acquiring Uhlman's. Uhlman's had 34 stores, 26 of them in Ohio. Its history dated to 1867, and nearly all that time it had been owned by the Uhlman family of Bowling Green and western Ohio.

In October 1996, Bain took Stage Stores public, offering stock to outside investors. The initial public offering, with a price of $16.50 a share, helped reduce the company's debt temporarily. Bain got $2 million in management fees during the deal and, according to SEC records, another $14 million from selling a portion of its stake. It still wound up with 18.2 percent of the newly issued stock.

Prior to the IPO, its stake in the company was 39.7 percent, followed by that of another investor, Acadia Partners, at 26.4 percent, and a subsidiary of Citicorp Banking Corp. with 7.2 percent, according to SEC records.

Bain also had two of its officers on Stage Stores' board of directors.

The growing company pleased stockholders and raised analysts' expectations, especially after Stage snapped up the 246-store C.R. Anthony Co., based in Oklahoma, in June 1997. Soon thereafter, in September 1997, Bain cashed out, selling its Stage Stores stock for just shy of $35 a share, a gain of $175 million on its initial $10 million investment, according to the Boston Globe. SEC records several months earlier put Bain's stake in Stage Stores at 15.8 percent, indicating it had already disposed of some stock but was still the largest shareholder through that summer.

This was not at the stock's highest point, however. It continued rising after Bain exited, topping out at $53.75 a share in June 1998.

Then Stage Stores took a steep dive.

Despite rosy analyst predictions and company executives' statements of optimism just a month earlier, Stage Stores in early August 1998 lowered its quarterly earnings expectations amid weather-related merchandising problems. A prolonged Southwest heat wave turned fall into a wasted season.

The market for sweaters and coats shriveled up, and summer wear had already been depleted in pre-Autumn sales. The merchandising mix was wrong in other regions, recalls Carl Tooker, the former chief executive, because the chain had mistakenly believed during its expansion "that we could just drop our formula in" from Houston. Color palettes and demographics in the Midwest were not the same as in Oklahoma and New Mexico, regardless of common store ownership.

"In Michigan, they want winter coats in August," Jim Scarborough, hired as CEO during the bankruptcy, told the Houston Chronicle in 2001. "In Houston, they want them for about 30 minutes in January. We had millions of dollars in inventory in merchandise for the wrong season and the wrong market."

The stock price fell more than 50 percent in a day after the August 1998 earnings report, and 91 percent as losses continued the next year. Before long, management itself was under attack from the board, with Tooker accused of cutting himself a sweet deal on a home sale at company expense and marrying a former employee after the company gave her a generous severance and consulting package. Tooker denied the claims and sued for wrongful termination. The parties later settled out of court.

Stage Stores scaled back its ambitions, shuttering under-performing stores. But the losses continued -- $281.9 million in 1999 and $162.2 million in 2000, SEC records show. Meantime, after the stock price dropped in 1998, Bain and several affiliates bought Stage Stores shares again, investing at least $23 million.

Bain and the Romney campaign say this was not enough to give Bain control or board representation. An SEC filing in 2000 listing stock ownership nevertheless shows that Bain investment funds -- funds that, according to these records, were controlled or led by Romney -- held nearly 15 percent of Stage Stores stock at this critical stage. This suggests that Bain had faith in Stage Stores' future and may not have anticipated what happened next: Stage Stores filed for bankruptcy protection on June 1, 2000.

All the Ohio stores closed. Bain lost its newer investment, though its earlier profit more than compensated for it.

The Romney campaign and Bain say that despite the stock ownership filing in 2000 listing Romney as "president and thus the controlling person of Bain Capital," Romney had left the active management of Bain by then. He signed on to run the Winter Olympics in Salt Lake City in February 1999. The Romney campaign acknowledges that his name was on records filed in 2000 but says that he had relegated his duties to others by then but had not yet changed the paperwork. Romney's federal financial disclosure statement for the presidential race says: "Since February 11, 1999, Mr. Romney has not had any active role with any Bain Capital entity and has not been involved in the operations of any Bain Capital entity in any way."

Bain's fault?

Before the bankruptcy, a shareholder, John C. Weld Jr., sued Stage Stores, Bain, Acadia Partners, and several Stage executives and corporate directors. He charged in federal court in Texas on March 30, 1999, that the major investors hid the company's true financial condition in 1997 so they could inflate the stock price and sell their shares at a profit.

U.S. District Judge Kenneth M. Hoyt dismissed the case that December, ruling that it lacked merit.

Bain said then, as it does now, that it had nothing to do with Stage Stores' financial problems, noting that they arose 10 months after it sold its controlling shares.

Furthermore, says Tooker, "They were just a shareholder," not an active manager.

In a telephone interview with The Plain Dealer, Tooker described Bain as an investor-advisor, not active in the company's regular operations.

"They were financial advisors," he said of Bain. "But we had our own treasurer, our own advisors." And other shareholders including Citibank "were as involved as they were."

The Obama campaign, however, says two factors point to Bain's role in the business failure.

First was the fact that Bain created what became Stage Stores in the first place, financing it with leveraged debt that eventually became a drag on the company, exceeding $500 million when it filed for bankruptcy protection. The company's SEC filings stated specifically that the debt was a factor in the bankruptcy.

In a report to shareholders, Stage Stores cited the "rapid growth during 1997 and 1998, significant turnover in key executive positions, significant leverage coupled with an inflexible capital structure and changes in the retail environment."

Bain maintains that the debt was no worse than that faced by several others in the retail industry around that time. Financial analysts use a ratio that compares net long-term debt with earnings to assess a firm's ability to make payments. In the mid-1990s, the net debt-to-earnings ratio for Stage Stores was 4.2, meaning it had 4.2 times the amount of long-term debt as it had annual earnings. Several other retailers including Target, Macy's and Sears had comparable or slightly higher ratios.

A debt-to-earnings ratio in that range "seems reasonable," said Michael C. Carroll, director of the Center for Regional Development and an associate economics professor at Bowling Green State University.

But that's an average, masking the fact that Stage Stores took on significantly more debt after the C.R. Anthony acquisition in 1997. The long-term debt grew by nearly 60 percent between 1996 and 1998, based on data from Stage Stores financial filings. Although operating income rose by 38 percent in the year that C.R. Anthony joined the chain, it dropped by 44 percent the next, the chain's lowest income level since 1994.

Is purple in style?

The Houston Chronicle, covering Stage Stores because it was a local corporation, reported in 2001 that "in retrospect, it is clear Stage was growing for the sake of growth itself, executives admit. Flush with the funds raised by an initial stock offering, Stage spent heavily in an effort to make the value of that stock soar." The newspaper quoted Scarborough, then the new CEO, as saying, "That is a dangerous combination -- lots of money and ill-conceived expansion plans."

It was that rising stock price amid the deal-making that enriched Bain, the Obama campaign says.

Yet Bain and the Romney campaign note that Bain did not exit at the top.

The share price rose nearly $20 in the year after Bain sold, they say. Bain did what all private-equity firms do: It borrowed to invest in a promising venture, leveraged the debt against the company's assets, and got out, earning a profit for itself and its investors.

Howard Davidowitz, a New York retail and investment analyst, criticized Stage Stores operations at the time of its troubles, although he has invested in non-retail Bain deals and says he admires the company. He says it is "crazy" to blame Bain for the Stage Stores fall.

The industry is cyclical, shoppers are fickle, and Stage Stores wasn't the only retailer to get it wrong, he says.

"Let's take Abercrombe & Fitch," said Davidowitz, chairman of Davidowitz & Associates. "Didn't their stock crap out? American Eagle Outfitters just went through this. Chico's, about 10 years ago, it had a run. . . You remember Talbots? Their stock was a train wreck. Did you know that Macy's went bankrupt? You're from Cleveland -- where's Higbee's? You want to start going through the list?"

The culprit, he said, was an inability to manage growth and geographical differences in style, taste and the merchandise mix. Bain made "a very smart investment," he said. "But it's very volatile, because it's fashion. Do you like purple this year?"

Maybe shoppers, he said, would rather wear green.

The Daily News Record, a fashion journal, noted in early 2000 that despite rampant consumer spending, 1999, a brutal year for Stage, saw a number of retailers vanish, with surging competition "weeding out the weak."

To those who say Romney is to blame for Stage Stores' problems, the Romney campaign has a retort: They should credit him, then, for the subsequent rebound. Romney and Bain had nothing to do with the rebound, of course, but the campaign's point is that he wasn't to blame for what happened after he and Bain left.

Exiting bankruptcy in 2002, a reorganized Stage Stores has grown into a chain with 813 stores in 40 states, including 25 Ohio stores. It has more than 14,000 employees, operating in stores with the names Bealls, Goodys, Palais Royal, Stage -- and Peebles.

And that's the irony.

Peebles used to be an independent chain based in Virginia. When Stage Stores was in bankruptcy, Peebles spotted an opportunity: eight shuttered or soon-to-close Stage stores in western and southern Ohio. The small-town locations were ideal.

So Peebles went to the bankruptcy court and won the right to buy out those Stage Store leases and the store fixtures, SEC records show.

Fast-forward to 2003. Stage Stores, looking to expand after bankruptcy, found a new acquisition, namely, Peebles. Stage bought the stores, and not just in those Ohio markets it had once held. It bought the entire 136-store Peebles chain.

Stage Stores, post-Romney, was shopping again.