Cream butter; gradually add sugar, beating well. Add egg yolks, one at a time, beating well after each addition.
Combine flour, baking powder, orange rind, and nutmeg; add to creamed mixture alternately with milk, beginning and ending with flour mixture. Stir in walnuts.
Beat egg whites (at room temperature) until stiff peaks form; gently fold into batter.
Pour batter into a greased and floured 13- x 9- x 2 - inch baking pan. Bake at 350° for 45 to 50 minutes or until wooden pick inserted in center comes out clean. Cool completely; spread Cream Cheese Frosting on top of cake. Cut cooled cake into squares to serve.