Blend cake mix, pudding mix, water, eggs and oil in large mixer bowl. Beat at medium speed of electric mixer 4 min. Stir in coconut and walnuts. Pour into 3 greased and floured 9" layer pans. Bake at 350 degrees F for 35 minutes. Cool in pans 15 minutes; remove and cool on rack. Fill and frost with Coconut Cream Cheese Frosting. COCONUT CREAM CHEESE FROSTING: Melt 2 Tbs. butter in skillet. Add coconut; stir constantly over low heat until golden brown. Spread coconut on absorbent paper to cool. Cream 2 tbl butter with cream cheese. Add milk and sugar alternately, beating well. Add vanilla; stir in 1 3/4 cups of the coconut. Spread on tops and sides of cake layers. Sprinkle with remaining coconut.