Preheat oven to 350 degrees F. Spray (2) 8-inch cake pans with no stick cooking spray.
In a large mixing bowl,using an electric mixer, blend together the cake mix,water,egg whites and oil. Beat on a low speed to combine, then beat on medium speed for 2 minutes.
Spread the cake mix evenly between the 2 pans.
Bake for about 23-27 minutes, or until toothpick inserted into the center, comes out clean.
Remove from the oven and cool on wire rack (in the pan) about 15 minutes. Remove cakes from the pans and allow to cool completely on the wire rack.
Place 1 cooled cake layer on a serving dish, spread thin layer of frosting on top of the cake. Add top cake. Frost the entire cake with 1 can of the frosting, and place in the freezer for 30 minutes.
Divide remaining frosting into 3 bowls. Place 1 cup frosting in bowl #1, then divide the remaining frosting between bowl #2 and #3. I used small amount of red coloring paste to make a light color, then more red for a darker color. The third one remained white.
Frost sides of cake with darkest color to white, then smooth with a spatula. Frost top white, and sprinkle some white nonpareils. Using a pastry bag and large star tip, pipe frosting along the bottom.
Gently push mini candy canes into the sides of the cake and arrange large and small candy canes on top.