Coat three 9-in. round baking pans with cooking spray and dust with flour; set aside. In a large bowl, combine the cake mix, water, eggs, egg whites, applesauce and pudding mix. Beat on medium speed for 4 minutes, scraping sides of bowl occasionally. Stir in coconut and walnuts.
Pour into prepared pans. Bake at 350° for 23-27 minutes or until a toothpick inserted near the center comes out clean. Cool for 10 minutes before removing from pans to wire racks to cool completely.
For frosting, in a large bowl, beat the cream cheese, milk and vanilla until smooth. Gradually beat in confectioners' sugar. Stir in 1/2 cup coconut.
Place bottom cake layer on a serving plate; spread with 2/3 cup frosting. Repeat layers. Top with remaining layer and frosting; sprinkle with remaining coconut. Store in the refrigerator. Yield: 16 servings.