While Billy is in either 1st or 2nd grade, Eric is in his office and his secretary pages him and says Brian Madison is on the phone. Eric says, "Tell him I'm out." Then, after that, Eric says, "Billy Madison on the phone wanting to talk to me. I'll take down Billy." It's pretty obvious, and I don't know how anyone could miss it.
Actually, Eric says something about Billy Madison being a baffoon and a menace and that he has to eliminate him. He says nothing about what you thought was a slip-up.
I have this movie, and that is definitely not what Eric says. It goes like this: Eric tells the secretary, "Tell him I'm out to lunch." Then, he says to himself while playing with his rat, "Billy Madison. A pest. What do we do with pests? We eliminate them. We eliminate Billy Madison."