Mackenzie received 469,000 pounds ($634,000) in salary for his work before being fired in August, down from 1.37 million pounds the year before, which had included 514,000 pounds in bonuses.

He was fired for gross misconduct over a "serious incident".

His dismissal, which was followed by profit warnings and a sharp drop in the share price, "has resulted in litigation which the AA will vigorously contest," AA said in the report.

A spokesman for Mackenzie declined to comment.

He is seeking to keep share incentives and up to 225 million pounds in damages, the AA said, adding it would incur legal costs of around 1 million pounds to fight the case.

"We acknowledge and regret that shareholders have had a very difficult year," Chairman John Leach said in the report.

"We believe we are now in a position to build a better AA."

AA shares have fallen 45 percent since Mackenzie's dismissal. They were up 2 percent at 137.7 pence at 0854 GMT.

($1 = 0.7394 pounds)

(Reporting by Carolyn Cohn; editing by Jason Neely)