2016 ANNUAL REPORT ABOUT Nearly More than More than $4B 13,000 Sales Customers Associates 21 13 Countries Locations Manufacturing Engineering Facilities Centers 2 As of December 31, 2016 FINANCIALHIGHLIGHTS (in millions, except per share data) Statement of income data 2016 2015 Net sales $ 3,948.0 $ 3,903.1 Gross profit 726.1 635.4 Operating income 380.7 358.1 Net income 240.7 235.6 Diluted earnings per share $ 3.06 $ 3.02 Balance sheet data Cash and cash equivalents $ 481.2 $ 282.5 Total assets 3,448.1 3,202.7 Total long-term debt, net 1,400.9 1,375.7 AAM stockholders’ equity 530.0 301.5 Statement of cash flow data Cash provided by operating activities $ 407.6 $ 377.6 Cash used in investing activities (227.7) (188.1) 1 1 2016 To Our ANNUAL Shareholders REPORT David C. Dauch Chairman of the Board & Chief Executive Officer 2 AAM had an outstanding year in 2016. The year brought record sales and profit, operational excellence, technology advancement and strategic initiatives that will help position AAM to meet future customer and market demands with a continued focus on developing products that are efficient, safe, and smart mobility solutions. 3 3 $3.95 $3.90 POWERING outstanding $3.70 financial performance AAM achieved another year of record sales and profit in 2016. Fueled by strong production volumes in North American and Asian markets and laser- (in billions) sharp performance in our global manufacturing Sales operations, AAM had full-year sales approaching 2014 2015 2016 $4 billion. Our compound annual growth rate (CAGR) for the years between 2013 and 2016 significantly exceeded the U.S. SAAR growth $726.1 for the same period. We generated $726 million in $635.4 gross profit, $408 million of cash from operations and strong earnings per share results of $3.06, $522.8 demonstrating our ability, once again, to meet and exceed financial targets. (in millions) During the year, our team diligently worked to continue to diversify our revenue base and improve Gross Profit 2014 2015 2016 our capital structure. Business diversification, fueled by growth in key global vehicle segments such as crossover vehicles, has contributed to $407.6 record profitability and strong operating cash flow $377.6 generation. By meaningfully strengthening our balance sheet and reducing debt leverage, we have (in millions) $318.4 positioned AAM for both organic growth initiatives and strategic opportunities. Cash from Operations 2014 2015 2016 4 POWERING growth AAM-MPG Facts We continue to plan and implement strategies that will help us sustain and grow our financial, operational and technological performance. Our strategic roadmap – which we refer to as AAM2020 – lays the foundation $7B for our organic and strategic growth as a company. This plan calls for AAM to significantly grow in size, scale and served markets. Organically, AAM continues to win new business with new global customers in growing vehicle segments. AAM’s new and incremental backlog for 2017-2019 is approximately $875 million with nearly 80 percent of the new Presence in business in crossover vehicles and passenger car segments. Furthermore, our new business wins continue to drive customer diversification and expansion in Europe and Asia. In November, we announced our plan to acquire Metaldyne Performance Group Inc. (MPG). This acquisition brings together two complementary Tier-1 organizations to create a premier global leader of driveline, drivetrain, powertrain, and metal formed components and modules. Once the transaction closes, the acquisition of MPG will be a major strategic step 25K toward the vision of AAM2020. This significant action, coupled with our blueprint to grow within our current served market and product portfolio, 25,000 Associates will support our long-term global growth strategy for AAM and provide value for our key stakeholders. But we aren’t just growing bigger, we are growing better. We are realigning Diversification our business plan with our strategic plan and our technology roadmap. We • Customer Base are building standardization across our business and regions by leveraging • Product Portfolio the AAM Operating System along with our culture, our associates, our • Global Markets processes and our brand. 5 5 Delivering POWER The auto industry has seen dramatic changes in the last few years. The megatrends of mobility, autonomous driving, connected cars, electric and hybrid vehicles, higher transmission speeds, downsized engines and lightweighting are driving future product development at both our customers and within AAM. AAM is acutely focused on growing our position as a technology leader and during 2016 we worked diligently to further that goal. This year, we tested and demonstrated AAM’s newest lightweight axle technology — QUANTUMTM — in multiple vehicle applications and locations. QUANTUM is at the forefront of axle technology for improved efficiency, mass reduction and vehicle performance. It is up to 35 percent lighter than a traditional axle and has increased vehicle capacity while being scalable across multiple applications. We expect this technology to lead us into the next generation of traditional, mechanical propulsion systems. QUANTUM is lighter, stronger and smarter and will help automakers meet more stringent government regulations without compromising performance. LIGHTWEIGHT AXLE TECHNOLOGY BY 6 EcoTrac® remains the go-to technology for customers looking for the performance of an all-wheel-drive (AWD) vehicle with the fuel economy of a FWD vehicle. EcoTrac allows the vehicle to use its primary drive system – the front wheels – when AWD is not needed. Our system uses sensors to detect hazardous driving conditions and engages AWD capabilities in a smooth and seamless manner to the driver. Engineered to automatically sense torque, EcoTrac varies the amount of power delivered to the wheels to best maintain traction, while optimizing efficiency. OurEcoTrac technology significantly reduces fuel consumption and emissions when compared to traditional AWD systems. Our Gen II EcoTrac design, which reduces the parasitic vehicle loss associated with traditional AWD systems by up to 90 percent, will launch on global vehicle applications in 2018. By the end of 2019, we expect EcoTrac to represent approximately $700 million of revenue for AAM in multiple global markets. 7 7 Our e-AAM™ Hybrid and Electric Driveline Systems are at the forefront of the global trend of electrification by delivering increased fuel efficiency, decreased tail pipe emissions and improvements in dynamic safety, acceleration, and eAWD traction. In addition, when equipped with AAM’s eTorque Vectoring solution, a modular system that can provide up to 1200 Nm differential torque across the full vehicle speed range, customers are able to experience AAM’s “true torque vectoring” at all vehicle speeds, offering a competitive systems advantage. The industry will continue to move toward e-drive technologies and AAM’s solution provides efficient power and improved vehicle performance and safety. AAM’s EcoTrac and e-AAM systems are just AAM’s first steps in our work to apply active intelligence to our portfolio of products. As the automotive industry continues to move toward connected vehicles and advanced mobility, AAM will be ready with smarter, active technologies that help keep drivers safe, improve vehicle performance and efficiency while maintaining our outstanding focus on quality and durability. We won’t just be delivering POWER ... we will be delivering SMART POWER. 8 Enabling POWER In order to maintain our competitive advantage, we have continued to strengthen our R&D capabilities with investments in our global technical facilities. AAM’s Advanced Technology Development Center (ATDC) is now complete and fully operational. The ATDC is the nucleus of AAM expertise, research, collaboration and innovation. Our teams are under one roof working to seamlessly integrate all of our functions – common data, common feedback, quick learning and quick application of action are all a reality. The ATDC is the epicenter for creativity, innovation, and advanced analytics and is the focal point of AAM’s development of future process, product, and system technology. Working in tandem with the ATDC, AAM’s Rochester Hills Technical Center (RHTC) continues to evolve as a testing and validation facility. We are expanding and enhancing AAM’s diagnostic and hardware assessment capabilities to allow for more extensive product benchmarking and prototype testing. The RHTC is home to the noise, vibration and harshness (NVH) team and AAM’s materials lab, which have been instrumental in developing new and advanced technologies focused on lightweighting, efficiency, and vehicle performance. Work continues on our all-new Mechatronics Technical Center, which is located adjacent to the RHTC. This facility will be integral to expanding our work with connected vehicle technology, embedded software, vehicle dynamics, actuator development and electronically controlled components. This is a critical area for AAM’s future product growth in the areas of integration and communication between our products and other vehicle systems. Additionally, we are expanding global technical capabilities at our Trollhättan Technical Center in Sweden. This important facility is our hybrid and electric driveline center of excellence and is integral to assisting our customers in meeting stringent fuel efficiency and CO2 requirements. 9 9 POWER to achieve excellence The key to AAM’s ability to deliver results for customers is our commitment