Xerox and KPMG have agreed to settle a shareholder lawsuit dating back to 2000 claiming that Xerox manipulated its accounting to inflate its earnings.

Under the proposed agreement, Xerox will make cash payments totaling $670 million, while KPMG, Xerox's former outside auditor and a co-defendant, will pay $80 million into the settlement fund. Xerox expects to make its payments in five installments this year.

"KPMG LLP confirmed a settlement of the Xerox class-action case," said Xerox spokesman George Ledwith. "We believe it's important to put this matter behind us, to avoid the further cost and distraction resulting from protracted litigation. This class-action settlement relates to events from an earlier period, in some cases more than a decade ago, involving KPMG LLP's audits and reviews of the 1997-2000 financial statements of its former client, Xerox Corp."

Xerox also said it settled the case to avoid the time, expense and uncertainty of litigation without admitting any wrongdoing.

The case, Carlson v. Xerox Corp., was brought on behalf of purchasers of Xerox common stock and bonds between Feb. 17, 1998, and June 27, 2002. Xerox will take an after-tax charge of $491 million in the first quarter of 2008 to cover the settlement and provide reserves for other pending securities-related cases.

In 2002, the Securities and Exchange Commission charged Xerox and several senior Xerox executives with improperly accounting for the leasing of copiers and other office equipment, booking the lease revenue upfront rather than over the years of the lease.

Xerox agreed to pay a $10 million civil penalty and restated five years of financial results, admitting that it inflated its pretax income by 36 percent, or $1.41 billion. KPMG was charged with approving Xerox's accounting techniques and settled the SEC charges in 2005 for $22.5 million without admitting any wrongdoing.