Preheat oven to 350 degrees F (175 degrees). Grease and flour two 8 inch round pans or one 9 x 13 inch pan.
Step 2
In a large bowl, blend cake mix with the water, eggs, and oil. Beat with an electric mixer at medium speed for 4 minutes. Stir in 2 cups coconut and nuts. Pour into prepared pans.
Step 3
Bake for 35 minutes, or until done. Cool completely.
Step 4
Melt 2 tablespoons butter or margarine in a skillet. Add 2 cups coconut, and stir constantly over low heat until golden brown. Spread toasted coconut on absorbent paper towel to cool.
Step 5
Cream 2 tablespoons butter or margarine with softened cream cheese. Add milk and sugar alternately, beating well. Add vanilla, and stir in 1 3/4 cups of the toasted coconut. Ice the cake, and sprinkle with remaining coconut.